Chapter one

Organizations and Organization Theory

Greek word Organon: meaning a tool, an instrument or
an organ to carry out tasks and meet goals, objectives.
It defined as Social Units of people that are structured
and managed to meet a need, or to pursue collective
goals.
Organizations are social entities that goal-directed,
designed as deliberately structured and coordinated
activity systems, and are linked to the external
environment.
 Cont.
• The key element of an organization is not a
building or a set of policies and procedures;
organizations are made up of people and their
relationships with one another. An organization
exists when people interact with one another to
perform essential functions that help attain goals.
• Managers deliberately structure and coordinate
organizational resources to achieve the
organization’s purpose.
• An organization cannot exist without interacting
with customers, suppliers, competitors, and
other elements of the external environment.
• Today, some companies are even cooperating
with their competitors, sharing information and
technology to their mutual advantage.
• Some organizations are large, multinational
corporations, others are small, family owned
businesses, and still others are nonprofit
organizations or governmental agencies.
Profit Business Vs. Non-profits
• Profit businesses direct their activities toward earning
money(profit) for the company whereas Managers in
nonprofits organizations direct their efforts toward
generating some kind of social impact.
• Financial resources for non-profits typically come
from government appropriations, grants, and
donations rather than from the sale of products or
services to customers. In businesses, managers focus
on improving the organization’s products and services
to increase sales revenues
 Non- profit managers

• Committed to serving clients with limited funds, must focus on

keeping organizational costs as low as possible and demonstrating a
highly efficient use of resources.
• to measure intangible goals such as “improve public health,” “make a
difference in the lives of the disenfranchised,” or “enhance
appreciation of the arts.” deal with many diverse stakeholders and
must market their services to attract not only clients (customers) but
also volunteers and donors.
 THEORY
• An idea or set of ideas that is intended to explain facts or
events.
• An ideal or hypothetical set of facts, principles, or
circumstances.
• It help us describe and understand what has happened as
well as predict what will happen in different circumstances.
In part, therefore, a theory entails describing and
conceptualizing the phenomenon in which we are interested.
 ORGANIZATIONAL THEORY
• A proposition or set of propositions that attempts to explain or
predict how groups and individuals behave in differing
organizational arrangements.
1. CLASSICAL ORGANIZATION THEORY (views organizations as
machines and human beings as parts of the machine)
2. NEOCLASSICAL THEORY (supply and demand as the
driving forces behind the production, pricing, and ...)
3. MODERN ORGANIZATION THEORY (integration of
valuable concepts of the classical models with the social and
behavioral sciences.)
CLASSICAL ORGANIZATION
THEORY
• Scientific Management Theory
• Weber's Bureaucratic Theory
• Administrative theory
1. Scientific Management
Theory
• Introduced by Frederick W. Taylor to
encourage production efficiency and
productivity.
• Concerned with knowing exactly what you
want men to do and then see in employers,
and then stresses the control of the labour
force by management.
Principles of Scientific
Management
1. The Creation of a scientific method of measurement
that replaces the “rule-of-thumb”
2. Emphasis placed on the training of workers by
management
3. Cooperation between manager and workers to
ensure the principles are being met
4. Equal division of labour between managers and
workers
2. Weber's Bureaucratic Theory
• Bureaucracy – An exercise of control on the basis
of knowledge
• Max Weber in his seminal book published
in1922 entitled Economy and Society, Weber's
bureaucratic approach considers the
organization as a part of broader society.
• An organization governed under Weber’s
conception of Bureaucracy is characterized
by the presence of impersonal positions
that are earned and not inherited, rule-
governed decision-making, professionalism,
chain of command, defined responsibility,
and bounded authority.
Characteristic of Bureaucracy

1. Division of Labor-
2. Managerial Hierarchy
3. Formal Selection
4. Career Orientation
5. Formal Rules
6. Impersonality
3. Administrative Theory
• It is based on several principles of management
composed of five management functions :
planning, organizing, commanding, coordinating
and controlling.
• Administrative theory was propounded by Henry
Fayol
14 Principles of Management
1. Division of Work
2. Authority and Responsibility
3. Discipline
4. Unity of Command
5. Unity of Direction
6. Subordination of Individual Interest to General
Interest
7. Remuneration/ Compensation
 Cont..
8. Centralization
9. Scalar Chain
10.Order
11. Equity
12. Stability of Tenure
13. Initiative
14. Spirit of Cooperation
 NEOCLASSICAL THEORY
• This theory is also known as human relations
theory.
• Classical theory deals with the formal organization
and concepts to increase management efficiency.
• This theory of management was a product of the
strong opposition against the Scientific and
universal management process theory of taylor
and fayol. This theory was a response on the way
employees were treated in companies and how
they were deprived of their needs and ambitions.
 Cont..

• It recognized the importance of individual

or group behavior and emphasized human
relations.
• Productivity increases were achieved as a
result of high morale, which was influenced
by the amount of individual, personal and
intimate attention workers received.
 CLASSICAL THEORY vs.
NEOCLASSICAL THEORY
• The classical approach stressed the formal
organization. It was mechanistic and ignored
major aspects of human nature. In contrast,
• the neoclassical approach introduced an
informal organization structure and
emphasized the individual, work group and
the participative management.
NEOCLASSICAL APPROACH
PRINCIPLES:
• The individual

• The work group

• Participative management
 Cont..
1. The individual. An individual is not a
mechanical tool but a distinct social being,
with aspirations beyond mere fulfilment of a
few economic and security works. Individuals
differ from each other in pursuing these
desires. Thus, an individual should be
recognized as interacting with social and
economic factors.
 Cont..

2. The work group. The neoclassical

approach highlighted the social facets of
work groups or informal organizations that
operate within a formal organization. The
concept of 'group' and its synergistic benefits
were considered important.
3. Participative management. Participative
management or decision making permits
workers to participate in the decision making
process. This was a new form of management
to ensure increases in productivity.
Note: Taylor's 'scientific management‘
focuses on work and the neoclassical
approach focuses on workers.
MODERN ORGANIZATION
THEORY
• Tend to be based on the concept that the
organization is a system which has to adapt to
changes in its environment.
• Modern theories are based on the concept that the
organization is an adaptive system which has to
adjust to changes in its environment
Modern theories include: -

I. The systems & Socio-technical approach

II. Quantitative approach
III. Contingency or situational approach
 I. Systems Approach
• Views organization as a system composed of
interconnected and thus mutually dependent -
sub-systems.
• These sub-systems can have their own sub-sub-
systems. A system can be perceived as composed
of some components, functions and processes.
 System Types
• OPEN SYSTEM- a system that continually
interacts with the environment around it.

• CLOSED SYSTEM- a system independent of the

environment around it.

• SUB-SYSTEM- a system that is part of a larger

system.
1. SOCIO-TECHNICAL APPROACH
• Considers the organization as composed of a social
system, technical system and its environment.
• These interact among themselves and it is necessary to
balance them appropriately for effective functioning of the
organization.
• The social system use tools, techniques and knowledge (the
technical system) to produce goods or services valued by
consumers or users (who are part of the organization's
external environment).
 2. QUANTITATIVE APPROACH
• Uses scientific or mathematical data to understand a
problem.
• Uses quantitative approach to improve decision
making.
Branches:
1. Management Science
2. Operations Management
3. Management Information System
• Management Science - emerged to treat the problems associated
with global warfare.

• Operations Management - focuses on managing the process of

transforming materials, labour, and capital into useful goods and/or
services.

• Management Information System -focuses on designing and

implementing computer-based information system for use by
management.
3. Contingency or Situational
Approach
• There is no one set of ways to manage system of
a company or organization to lead.
• Contingency theory factors:
-The size of the organization.(L&S)
-How the firm adapts itself to its environment.
-Differences among resources and operations
activities.
Importance of organizations
1. Bring together resources to achieve desired goals and outcomes
2. Produce goods and services efficiently
3. Facilitate innovation
4. Use modern manufacturing and information technologies
5. Adapt to and influence a changing environment
6. Create value for owners-profit, customers-utility, and employees-
satisfaction.
7. Accommodate ongoing challenges of diversity, ethics, and the
motivation and coordination of employees
 DIMENSIONS OF ORGANIZATION DESIGN

• Organizations shape our lives, and well-informed

managers can shape organizations. The first step
for understanding organizations is to look at
dimensions that describe specific organizational
design traits. These dimensions describe
organizations in much the same way that
personality and physical traits describe people .
Dimensions-organization, Vs. personality and physical traits-people.
 Types of Organizational dimensions
A. Structural dimensions: - provide labels to describe the
internal characteristics of an organization. They create a
basis for measuring and comparing organizations.
B. Contextual dimensions: - characterize the whole
organization, including its size, technology, environment,
and goals.
They describe the organizational setting that influences and
shapes the structural dimensions.
They represent both the organization and the environment.
 I. STRUCTURAL DIMENSIONS
1. Formalization pertains to the amount of written
documentation in the organization.
It’s is often measured by simply counting the number of
pages of documentation within the organization.
Documentation includes:- procedures, job descriptions,
regulations, and policy manuals. These written documents
describe behavior and activities.
2. Specialization/ division of labor/:- is the degree to
which organizational tasks are subdivided into separate
jobs. If specialization is extensive, each employee
performs only a narrow range of tasks. If specialization
is low, employees perform a wide range of tasks in their
jobs.
3. Hierarchy of authority:- describes who reports to whom
and the span of control for each manager. The hierarchy is
depicted by the vertical lines on an organization chart.
When spans of control are narrow, the hierarchy tends to be
tall.
When spans of control are wide, the hierarchy of authority
will be shorter.
4. Centralization:- refers to the hierarchical level that has
authority to make a decision.
When decision making is kept at the top level, the
organization is centralized. When decisions are delegated to
lower organizational levels, it is decentralized.
5. Professionalism:- is the level of formal education and
training of employees.
It’s considered high when employees require long periods of
training to hold jobs in the organization. Professionalism -
which could be as high-twenty in a medical practice and less
than ten in a construction company.
6. Personnel ratios: refer to the deployment of people
to various functions and departments.
A personnel ratio is measured by dividing the number
of employees in a classification by the total number of
organizational employees.
PR= the number of employees in a classification
the total number of organizational employees
 II. CONTEXTUAL DIMENSIONS
1. Size:- can be measured for the organization as a whole or for
specific components and it’s typically measured by the number of
employees.
2. Organizational technology:- refers to the tools, techniques, and
actions used to transform inputs into outputs.
3. The Environment:- includes all elements outside the boundary of
the organization.
Key elements include the industry, government, customers, suppliers,
and the financial community.
4. Goals and strategy:- The organization’s goals and
strategy define the purpose and competitive
techniques that set it apart from other organizations.
5. An Organization’s culture:- is the underlying set of
key values, beliefs, understandings, and norms shared
by employees.
PERFORMANCE AND EFFECTIVENESS OUTCOMES

• Managers adjust structural and contextual dimensions to most

efficiently and effectively transform inputs into outputs and
provide value.
• Efficiency refers to the amount of resources used to achieve
the organization’s goals.
• Effectiveness is a broader term, meaning the degree to which
an organization achieves its goals.
• Achieving effectiveness is not always a simple matter because
different people want different things from the organization.
• Managers carefully balance the needs and interests of
various stakeholders in setting goals and striving for
effectiveness.
• A stakeholder is any group within or outside of the
organization that has a stake/role/influence in the
organization’s performance. The satisfaction level of each
group can be assessed as an indication of the organization’s
performance and effectiveness.
 Major Stakeholder Groups and What They Expect

1. Employees- Satisfaction, pay and supervision.

2. Customers-high-quality goods, services, and value
3. Creditors- Credit worthiness, fiscal responsibility
4. Management –Efficiency and Effectiveness
5. Government – Obedience to laws and regulations
6. Union- Worker pay, and benefits
7. Community-Good corporate citizens and contribution to community affairs
8. Suppliers-Satisfactory transactions and revenue from purchases
9. Owners and stockholders-Financial return.
 Organizational Configuration
• Another important insight from organization design
researchers is how organizations are configured—that is,
what makes up an organization’s parts and how do the
various parts fit together?
• Henry Mintzberg suggests that every organization has five
parts. These parts include the technical core, top
management, middle management, technical support, and
administrative support.
 Cont.

1. Technical Core - The technical core includes

people who do the basic work of the organization.
This part actually produces the product and service
outputs of the organization.
This is where the primary transformation from
inputs to outputs takes place.
It’s the production department in a manufacturing
firm, the teachers and classes in a university, and the
medical activities in a hospital.
2. Technical Support- it helps the organization adapt
to the environment.
Technical support employees such as engineers,
researchers, and information technology
professionals scan the environment for problems,
opportunities, and technological developments.
It’s responsible for creating innovations in the
technical core, helping the organization change and
adapt.
3. Administrative Support- This function is responsible for
the smooth operation and upkeep of the organization, including
its physical and human elements.
This includes human resource activities such as recruiting and
hiring, establishing compensation and benefits, and employee
training and development, as well as
maintenance activities such as cleaning of buildings and
service and repair of machines.
4. Top Management- is a distinct function, responsible for
directing and coordinating other parts of the organization.
It provides direction, planning, strategy, goals, and policies
for the entire organization or major divisions.
5. Middle management- is responsible for
implementation and coordination at the departmental
level.
In traditional organizations, middle managers are
responsible for mediating between top management
and the technical core, such as implementing rules and
passing information up and down the hierarchy.
Mintzberg proposed that the five parts could fit
together in five basic types of organization: -
top management -Entrepreneurial Structure.
 Efficient Performance Vs. The Learning Organization

• The new mindset has spurred many organizations to shift from strict
vertical hierarchies to flexible, decentralized structures that emphasize
horizontal collaboration, widespread information sharing, and adaptability.
• Many managers are redesigning their companies toward something called
the learning organization.
The learning organization promotes communication and collaboration so
that everyone is engaged in:-
identifying and solving problems,
enabling the organization to continuously experiment,
improve, and
increase its capability.
A. From Vertical to Horizontal Structure
B. From Routine Tasks to Empowered Roles
C. From Formal Control Systems to Shared Information
D. From Competitive to Collaborative Strategy
E. From Rigid to Adaptive Culture
 P T E R ON E
FC H A
E ND O

Thank you !!