Chapter-1

THE NATURE OF ORGANIZATIONS

Concept of Organization
Organization is an association of two or more individuals working together co-
ordinatingly to achieve a common goal. In other word, an organization is a collection of
people working together in a division of labor to achieve a common purpose.
Conclusively, people form an organization on the basis of their common goals, to make
division of works on the basis of efficiency, to delegate the authority and responsibility,
to maintain communication among them and to coordinate the activities among all the
members.
“Organization is a systematic arrangement of people brought together to accomplish
some specific purpose.” _ Decenzo and Robbins
Characteristics of Organization
1. Collection of people: The concept of organization comes into existence when to more
people come together to accomplish a definite goal. Therefore, organization is a human
association in which, people interact with each other to produce a synergic effect and
develop a network to communicate information and to maintain unity in work.
2. Common goal: The basis of an organization is a specific goal and it serves as a reason of
its existence. All the activities of involved members, concentrate on the fulfillment of
common goal.
3. Division of work: The total work is a divided into small units on the basis of their nature
in an organization. Each work is assigned to different individuals according to their skills,
abilities and experiences.
4. Coordination: Coordination is the process that integrates the function of different units
of an organization; there should be good coordination among the departments and
members through executive leadership.
5. Hierarchy of authority: Organization consists of a formal structure in which hierarchy of
authority of each member is clearly defined. The hierarchy of authority is formed on the
basis of degree of responsibility and accountability. It clarifies the role of each individual
from top to the subordinate levels.
6. Perpetual existence: An organization is formed for an indefinite period to perform
business for a long period of time. An organization continues its existence and operation
even while changing in structure, membership, objectives and management.
7. Environment: An organization performs activities in a dynamic environment. It
consumes resources from environment and also exports output to it. Basically, impact of
 external environment like political, economic, socio-cultural and technology must be
taken into consideration.
8. Technology: Technology refers to new knowledge, skills, ideas, procedures, equipment
and tools. It is essential to convert raw materials into finished products. The use of
appropriate technology in a job helps to develop working efficiency and also help to
minimize the cost of output.
Organizational Goals
Concept
Goals are objectives or aims for which an organization is formed. And setting goals of an
organization is the initial function of management. Goals, in fact, are what organizations
want to achieve in future. They are the objectives toward which organizations direct
their resources and efforts Goal gives meaning and purpose of the organization. They,
on the one hand, determine the scope of future activities and serve as reference points
to concentrate resources and efforts, on the other they determine the action to be
taken at present to obtain result in the future.
“Organizational goals are the objectives that management seeks to achieve in pursuing
the firm’s purpose.”--- Moorhead and Griffin
Purposes of Organizational Goals
1. To provide guidance and unified direction: Goals are the basis of future performance of
organizations. By considering the goals managers of organizations provide guidance and
unified direction to their members. Therefore, goals help every member of an
organization to understand where the organization is heading for.
2. To promote good planning: Goals are the basis of planning, and a good planning focuses
on goals. Managers formulate corporate, tactical and operational plans only by
considering organizational goals. Organizational resources are allocated on the basis of
goals, because the goals also facilitate in decision making.
3. To serve as a source of motivation: Specific, realistic and challenging goals serve as a
source of motivation to employees. Such goals are the basis of motivation for efficient,
skilled and hardworking employees. Likewise, goals motivate employees to devote their
time efficiently.
4. To provide effective mechanism for evaluation and control: Goals provide an effective
mechanism for evaluation and control of performance. They help to set a standard of
performance of an organization. When standard goals are achieved, it is assumed that
performance is efficient. But if actual performance is below standard, it is essential to
corrective measures to improve future performance.
5. To provide distinct image and identity: Sound and realistic goals provide a distinct
image and identity of an organization among the public. These distinctive image and
identity facilitate to attract efficient and competent employees in the organization.
Further, the involvement of skilled employees helps to maximize productivity and to
improve quality of goods and services.
6. To allocate and utilize resources properly : Goals help to develop good plan, and good
plan in turn, helps allocate and utilize available resources. In that sense, goals serve as
guidance for the optimum utilization of resources. However, proper allocation of
resources ( such as human, physical, financial and information) depend on management
skills and knowledge of managers. If the goals are clearly stated the wastage and misuse
of resources can be minimized.
Types of Organizational Goals
A. On the Basis of Levels of Management

a. Corporate goal: Corporate goals are formulated by top level management. These goals
focus on the realization of the dream of the top level management. These goals reflect
the direction in which an organization has to go and the roles each business unit in the
organization has to play pursuing that direction. Corporate goals consist of vision,
mission and strategic goals.
 Vision
Vision refers to the long term aspiration of management. A clear vision provides the
foundation for developing comprehensive mission statement and it visualizes the
company’s future strategy course. Vision answers the question “Where we want to be?”
 Mission
Mission focuses on the vision of the organization. It also represents the philosophy and
ideology of the organization. It is the statement of its fundamental unique purpose for
setting a business apart from other similar firms, and for identifying the unique scope of
the business operation in product and market terms. Mission forces managers to
identify carefully for the scope of its product or service by answering the basis question
of what its business is.
 Strategic goals
Strategic goals are developed on the basis of mission focus on long term objectives of
an organization. These strategic goals entail all the basic management functions by
setting goals to excel the management of an organization. Generally, strategic goals are
set for five to ten years. The examples of such goals are: profit maximization, quality
improvement, new product development, allocation of resources, research and
development etc.
b. Tactical goal
Tactical goals are developed on the basis of strategic goals. Middle level management
sets these goals for one or more years by focusing on how to take the necessary actions
to achieve the strategic goals. In these stage, strategic goals are classified into
departmental goals like production, marketing finance, personnel etc.

c. Operational goal
Operational goals are developed on the basis of tactical goals. Lower level management
consisting of supervisors and foreman are responsible setting these goals. These goals
are basically set for day to day operations of an organization. In this stage, tactical goals
are classified into small units to be achieved in a short span of time like in a day or a
week.

B. On the Basis of Nature of Business and Environment

a. Survival goal
This goal is related to the existence of the organization. It focuses on minimum
requirements of an organization to ensure its survival. When organizations face the
problems like competition, global financial crises, shortage of funds, then it may be
necessary for the organization to find new for survival.
b. Growth and profit goal
Most of the organization follow growth and profit goal. When an organization seeks to
increase profit, it may become profit goal for that organization. Growth goal, on the
other hand, mainly emphasize to increase sales and market share all the time.
c. Efficiency and leadership goal
Efficiency goal focuses on the minimization of the operation cost but maximization of
productivity whereas leadership goal, on the other hand, refers to creating image and
leading the industry. Organizations that focus on leadership goal put emphasis on
innovation and quality improvements. They try to create distinct image in the industry
sector.
d. Service and social responsibility goal
Service goal refers to putting effort to make customer satisfied by providing quality
service. Social responsibility goal, on the other hand, puts emphasis on the highest
 degree of social responsibility. This goal refers to meeting the need of stakeholders
including the interest of business itself.

C. On the Basis of Area

a. Production goal
Production goal is necessary for manufacturing organizations. This goal focuses on
production of quality goods in reasonable price at the right time. This goal is essential to
fulfill the market demand and to meet organizational goal.

b. Marketing goal
Marketing goal focuses on fulfilling marketing mix; and the marketing mix consists of
product, place, price and promotion. Therefore, marketing goal consist of distribution of
quality product to needy customers at the lowest possible price, involving for the
development promotion strategy to increase market shares through competitive
strength.
c. Finance goal
Financial goal focuses on monetary management of the organization. And, the monetary
management consists of preparation of budget; cash flow trend, position of working
capital, cost of capital etc.
d. Human resource goal
This goal concentrates on recruitment, appointment and placement of right persons to
the right jobs. It involves manpower development activities like training, workshop,
seminar etc.

D. On the Basis of Time

a. Long - term goal
Organizational mission and strategy are long term goals of an organization. Mission
focuses on the vision of the organization by representing its philosophy and ideology.
Long term goals often extend for ten years or longer.
b. Medium -term goal
Tactical goals are medium term goals of an organization. Middle level management sets
these goals for one to five years. These are the sub-division of long term goals to be
implemented in practice. In this stage, strategic goals are classified into departmental
goals production, marketing, finance personnel etc.
c. Short-term goal
Operational goals are short term goals of an organization. These goals are developed on
the basis of medium term goals. These goals are basically set for day to day operations
of the organization or for one year or less.
 Features of Effective Organizational Goals

1. Specific: An organizational goal must be clearly defined and achievable through

organizational resources. It should not to be vague. For this, goals of each department
and individual should be clearly stated. For instance, only increase in production is not
specific, but 20% increase in production from the previous year is specific.
2. Measurable: The goal of an organization should be measurable in terms of quantity,
cost, time and quality. It also helps to judge whether goals are achieved or not. For
example, production of 100 units of output within one week at a cost of Rs.50 per unit,
and quality should meet the N.S.(Nepal Standard) mark.
3. Acceptable: the goal should be acceptable and agreed upon by all members of the
organization. Managers and subordinates should sit together and discuss the various
aspects of the goals and should accept the result through mutual agreement. The goals
should not be enforced upon the employees. To achieve the goals, all the members
should work as a team.
4. Realistic: The goals must be achieved by the hard works of members, though they are
challenging. Therefore, the management must set a realistic and challenging goal. For
instance, increment of 100% sale may not be achievable but increment of 20% sale may
be achievable.
5. Time-bound: The goals must be set for specific period of time. It should achievable
within a defined time frame. It is essential because achievement of goals after the expiry
of the defined time may be useless. If is delayed, competitors may take benefit. For
instance, production of 100 units of output per day is a time-bound goal.
6. Engaging: It means organizational goals should be attractive and appealing to its
member. Such engagement of people is possible only when concerned people
participate in goal setting process. When goal setting is discussed with employees, they
are more confident and supportive about themselves.
7. Shifting: During the course of organization life, the most consistent thing only
organization will experience is change. It means the goal will shift or change over the
course of time. The organization need to be flexible while they pursue their goals. In this
rapidly changing environment organization that stick to the same goals for years can’t
successfully achieve them.
8. Team effort: People generally don’t follow agreement thoroughly that were set with
others. However, a team effort members will be more sensitive to continuing their goals
because they will report their success and failure to their managers and supervisor.
Team effort binds people together and puts emphasis to accomplish goal successfully.
 Goal Formulation Process

1. Environmental scanning: Environmental scanning is the initial stage of the goal

formation process. It is the process of accumulating and analyzing information from the
environment. Basically, both internal and external environments are to be scanned to
analyze their impact on organizational performance. SWOT analysis- the study of
Strength, Weakness, Opportunities, and Threats- is helpful for environmental scanning.
Strength and weakness are the outcome of internal environments and opportunities
and threats are the outcome external environment. Internal environment involves
organizational goal, culture, resource and structure; whereas external environment are
political, economic and socio-cultural environment and technology.
2. Formation of overall goal: This is the second stage of goal formation process. In this
stage, mission and strategic goals of an organization are defined. The top level
management involves in setting the overall goals of an organization. For the overall goal
formation, information from the environment should be collected and analyzed. It is a
long term goal and directed by environmental trend and focuses on profit goal of the
organization. In this stage, the management must fix the financial goal, product-market
mix goal, and functional goal.
3. Formation of specific goal: This is the final stage of the goal formation process and
involves sub-divisions of the overall goals of the organization. In this stage, contribution
of each department, unit, branch and individual is defined to fulfill the overall goals of
the organization. It is the short term goal and set for a day, a week, a month and so on.
Middle and lower level management formulates it for them.

Approaches to Goal Formulation

1. Top-down approach: This is the traditional approach of the goal setting process. In this
approach, top level management sets strategic, tactical and operational goals of the
organization. In this approach the top level managers do not take any suggestion and
feedback from middle and first line managers while setting goals. They believe that they
know what is best because they can only see the big picture of the goal of the
organization. The top level authorities may take suggestions and technical guidance
from experts and professionals but they take the final decision themselves. They also
formulate goals of the organization and circulate to subordinates for implementation.
2. Bottom-up approach: In this approach, middle and first line managers are given
authority to set their own departmental and unit goals within the given framework. On
the basis of the framework of corporate and strategic goal, middle and first line mangers
set their unit and individual goals. In this approach the top- level managers integrate
 and unify the unit goals in consultation with and consent of subordinates playing the
role of facilitators and never interrupt in the goal setting process. However, top- level
managers may modify the unit and individual goals but only with the consent of
subordinates.
3. Management by objective (MBO) approach: Management by objective is a
comprehensive technique applied for goal setting. Peter F. Drucker propounded this
approach in 1954. In this approach, both top and operational level managers of an
organization jointly identify the common goal; define each individual’s major areas of
responsibility in terms of the results expected from them. MBO process involves four
steps consisting of collaborative goal setting, action plan development, periodic review
of performance and performance appraisal.

Goal Succession
Concept
Goal succession is the act of intentional review and modification of existing goals. It is
essential when existing corporate goal has been achieved or cannot be achieved in the
exiting form due to environmental influence. In course of functioning due to
environmental influence, it is necessary to modify the existing goals according to the
time and situation to achieve the corporate goals. It is also the part of goal succession.
When the organization faces keen competition, declining sales, scarcity of funds and
other environmental challenges, it needs to identify new goals for survival and
perpetual existence of organization. For instance, in Nepal, during the political crises
between, between 2055 to 2063, hotels and resorts modified their profit goals to
survival goals.
Reasons for Goal Succession
1. Achievement of original goal: When original goal is achieved in a given period of time, it
is essential to set a new goal, because it is a part of goal succession. For instance, a
cement manufacturing company sets a goal to produce 1000 tons of cement in a
process within six month and after achievement of this goal within the time it has to set
anew goal for the next period.
2. Non- achievement of original goal: The non-achievement of original goal needs goal
succession. When original goal cannot be achieved even by the hard work of
management, it needs to review and modify the existing goal for perpetual existence of
the organization. For instance, a business organization sets a profit goal for a fiscal year,
 but after some interval it is found that the stated profit cannot be achieved; and
therefore, it sets a survival goal for that fiscal year.
3. Change in environment: Environment is dynamic and regularly influences organizational
functioning. It is more difficult to forecast and predict environmental changes, basically,
of external environment. Therefore, every organization needs to modify its original goal
in accordance with the environmental changes.
4. Organizational priority shifting: Goal succession is the outcome of shift in organizational
needs and priorities. Although there may be many objectives that an organization has to
achieve, it becomes impossible to achieve more objectives at a time by mobilizing scarce
resources. Therefore, an organization may modify its original goal on the basis of its
available resources and priority.

Goal Displacement
Concept
Goal displacement is the act of unintentional change in the original goal into a new goal.
In this situation, original corporate, strategic and operational goals are discarded and
new goals are set for the survival of the organization. In goal displacement, existing
resources are diverted from original goal to achieve new goal. For instance, many
cinema halls in Nepal have been converted into party palaces and go-downs due to lack
of audiences as movies are nowadays easily available through cable TV and in compact
discs. In fact, in goal displacement, the organization involves in various activities such as:
 Substitutes its official strategic goals for some other goals,
 Pursues a goal for which it was not established,
 Pursues a goal for which resources were not allocated to it,
 Seeks a goal which is not known to serve.

Reasons for Goal Displacement

1. Excessive delegation of authority : Excessive delegation of authority to the
subordinates may result in distortion of the original goal. Generally, the mangers
delegates authority and responsibility to subordinates, but maintains proper supervision
and control over their activities. But excessive delegation of authority and responsibility
to subordinates without a proper controlling system may not meet the objectives of
delegation and results in goal displacement.
2. Subordination of organizational goal: It is an acceptable principle that top priority must
be given to the organizational goals. However, if employees give more priority to their
individual goals by subordinating organizational goals, it results in goal displacement.
3. Employees’ attitude: The management sets organizational goal and circulates them to
the employees for their implementation. If employees have a positive attitude towards
the organizational goals they can be achieved in an effective way. However, if
employees and their unions have a negative attitude towards management decisions,
they do not perform effectively, which may result in goal displacement.
4. Vague goal: An abstract and vague goal cannot be achieved. Generally, a goal must be
specific and achievable within the defined time. However, if a goal is unclear, members
of the organization cannot achieve with limited resources. In such a case, the
management needs to displace the original goal.
5. Bureaucratic difficulties: The management develops rules, policies and procedures to
perform organizational functions in a systematic way. However, it is essential to modify
and amend such a system remains rigid and static, it may create difficulties to perform
jobs effectively. Such difficulties arises in bureaucratic type of organizations.

Problems of Goal Formulation

The basis function of the top level management is goal setting. In setting goals,
management faces many obstacles. Managers must understand the obstacles that can
hamper the goal setting process. Rocky W. Griffin(2000)has identified the following six
major barriers in goal setting.
1. Inappropriate goal: An unattainable goal is known as inappropriate goal. Organizational
goals become inappropriate when the management lays more emphasis either on
quantitative or qualitative measures. For instance, goals, especially those relating to
financial areas, are quantifiable, objective and verifiable, while goal relating to
employees’ satisfaction and development are difficult to quantify. Similarly, putting too
much emphasis on one type of goal to the exclusion of the other may create difficulties
in the overall goal formation process of the organization.
2. Improper reward system: An improper reward system such as a major barrier to goal
setting. In an 0organization there must be a balance in reward and goal setting efficiency
of the employees. Because, the appropriate reward system encourages employees to
devote their effort in the goal setting process. But if the management rewards
employees for setting poor goal and does not reward or even penalizes them for setting
proper goals, the employees get frustrated.
3. Dynamic and complex environment: The environmental change may create difficulty in
goal formulation. The rapid technological innovation and keen competition can increase
the difficulties of an organization to set goals. At present, it is difficult to assess
accurately the future environmental opportunities and threats in goal achievement.
Therefore, it is essential to amend organizational goals on the basis of environmental
influence.
4. Reluctance to set goals: Some managers are reluctant to set goals for themselves and
their subordinates may create barriers in the overall goal setting of the organization. If
mangers set goals that are specific, concise, and time-bound, then the achievement of
the goals is obvious. Mangers who consciously or unconsciously try to avoid this degree
of accountability are likely to hinder an organization’s goal setting. However, the reason
for this reluctance may be lack of confidence or fear of failure.
5. Resistance to change: The resistance to change is another barrier for goal setting.
Generally, people tend to resist change because of lack of confidence and conservative
attitude. Members of an organization may fear losing their job due to change in goals. It
happens due to lack of proper communication about the outcome of the goal change.
6. Resource constraints: Lack of sufficient resources may also create a barrier in goal
formulation of the organization. Strong competition, time limit and government
restrictions are common constraints in the goal setting process. Therefore, the
management needs to consider available organizational resources in goal setting.
Changing Perspective on Organizations

1. Open system: Traditionally, organizations were viewed as a close system where they
didn’t consider social needs and expectation. In close system there is no interaction with
the environment and organizations performing their business in this system are treated
as machines.
In an open system, there is regular interaction with the environment. The development
of competition, technological change, change in government rules and regulations and
change in social expectation creates challenges to the organizations.
2. Organizations as culture: Culture is the sum- total of values, norms, tradition, beliefs
and assumption of an organization. These are the basis of organizational functioning. If
any dispute and misunderstanding arises among members or between the management
and the employees, organizational culture is taken as the basis to resolve such disputes.
An organization having good culture can maintain social prestige and status. Therefore,
to strengthen its existence every organization needs to develop a sound culture.
3. Globalization: The concept of globalization has been emerging today in business
organization. Any quality product and service produced in one corner of any country can
easily reach all parts of the world without any restriction and barrier. Especially,
multinational companies are global players in business not only to survive but also to
prosper. For instance, Coca-Cola, a USA based soft drink, gains about 80% of its profit
from foreign sales in nearly 200 countries.
The globalization brings the concept of keen competition among the entrepreneurs of
the world. Therefore, present managers have to work by considering the global
prospective. Being innovative and adjustable to the changing environment of the
 business, they have to work with new situations, culture, people and also new parts of
the world.
4. Learning system: It is fact that knowledge is power and present society is based on
knowledge. In this competitive environment, customers expect new ideas, new things
and creativity in product and service from any organization.
Knowledge is not only confined to or acquired by managers; however, it can be learned
from subordinates through interactions. Every employee involved in an organization
may have specific or new knowledge in certain areas of management. Therefore, the
most important job of present day managers is to manage knowledge of subordinates
on the basis of requirement from outside sources to fulfill social expectation and to
maintain the standard of the organization.
5. Temporary employment: The concept of employees’ appointment on temporary basis,
on contract basis or on daily wage system has been evolved in many organizations.
Slowly the concept of permanent employment is being terminated due to priority to
work rather than job security and flexibility of work schedule. On the basis of
requirement, the tendency of outsourcing and sub-contracting for some minor jobs has
emerged in many organizations.
6. Workforce diversity: Workforce diversity is concerned with involvement of
heterogeneous nature of employees in an organization. Such diversity is increasing in
organizations today because of changing population dimensions, to improve workforce,
official pressure and increased globalization. Among, the several dimensions of diversity,
the important ones are age, gender, and ethnicity.
An efficient manager has to manage diverse workforce both from the individual and
organizational approaches. The first approach involves development of better
environment like understanding, empathy, tolerance, and willingness to communicate,
the latter approach involves development of policies, practices, training, and good
culture.
7. Team empowerment: Teams are formed today to formed a variety of jobs on the basis
of requirement in the organization. The members of the team are experts in their own
area of operation. The team members, thus, are the in-charge of their work and can
perform their work themselves according to their own logic and knowledge. And the
managers only communicate information and play the role of coordinators.
8. Work time flexibility: Work time flexibility is the emerging practice in competitive
business organizations. It is contrast with traditional organizations, like in government
offices, where working time for employees is fixed. In such organizations, workers work
only for a fixed time specified by the management like from 10 AM to 5 PM. However, in
competitive business organizations, the concept of twenty-four-hour operation has
been evolved. For this, the total working hours are divided into shifts and workers are
allowed to choose their shift according to their convenience.
9. Participative culture: The practice of participation of employees in planning and
decision making has been emerged in modern organizations. In this practice the top-
level management collects opinions, views and suggestions from subordinates before
setting goals and taking any decision on its implementation. Basically, the concept of
management by objective is implemented in practice, where all the members
participate in the decision making.
10.Technological development: Technological development is ever growing and an
emerging perspective in every organization. It emerges in every sector of social activity
including transportation, communication, computer software, data processing works,
machine and equipment etc. Such technological development tends to increase the
aspirations and expectations of customers, investors, competitors, employees and other
stakeholders of the organization.
It is the responsibility of managers to keep in touch with any technological change in
their own sector of business and grasp the opportunity to make business a success. They
have to modify products and services on the basis of changing needs of the customers.
Similarly, quality goods and services must be provided to the customers on the right
time, cost and place through the use of modern technology.