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Organizational Theory,Design, and Change

Sixth Edition

Gareth R. Jones

Chapter 1

Organizations andOrganizational

Effectiveness

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What is an Organization?

Organization: a tool used by people tocoordinate their actions to obtain somethingthey 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 OrganizationCreate 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 anorganizations boundaries but affect its

ability to acquire and use resources tocreate value

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Figure 1.1: How an OrganizationCreates Value

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Why Do Organizations Exist?

People working together to produce goods andservices create more value than peopleworking 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 moreeffectively because they can be shared across several differentproducts 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 affectorganizations

Organizations regularly exchange products and services forneeded 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 whomust cooperate

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Figure 1.3: WhyOrganizations Exist

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Organizational Theory, Design, andChange: Some Definitions

Organizational theory: the study of howorganizations function and how they affect and areaffected by the environment in which they operate

Organizational structure: the formal system of taskand authority relationships that control how people tocoordinate their actions and use resources to achieveorganizational goals

Organizational culture: is the set of key values,beliefs, and attitudes shared by organizationalmembers and helps shape the behavior within theorganization

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Some Definitions (cont.)

Organizational design: the process by whichmanagers select and manage aspects of structure andculture 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 somedesired future state to increase their effectiveness

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

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Importance of OrganizationalDesign and ChangeEffective design is required for high

organizational performance4 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 fororganizational culture and effectiveness

Learning how to effectively utilize a diverse workforce canresult in better decision making and more effectiveworkforce

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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 the organizations people or structures Strategy: pattern of decisions and actions involving core

competences that produces a competitive advantage tooutperform competitors

Promoting efficiency, speed, and innovation

The better organizations function, the more value theycreate

The correct organizational design can lead to fasterinnovation and quickly get new products to market

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Consequences of PoorOrganizational Design

Decline of the organization

Lower performance

Talented employees leave to takepositions in other organizations

Resources become harder to acquire

Resulting crisis may result inorganizational failure

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Why is OrganizationalEffectiveness 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 well

3 primary ways discussed in chapter: Control: external resource approach

Innovation: internal system approach

Efficiency: technical approach

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Table 1.1: Approaches toMeasuring Effectiveness

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Measuring Effectiveness:Organizational GoalsManagers also measure effectiveness by

creating and measuring performancegoals

Official goals: guiding principles that the

organization formally states in its annualreport and in other public documentsMission: a mission statement explains why

the organization exists and what it should bedoing

Operative goals: specific long- and short-term goals that guide managers andemployees as they perform the work of theorganization

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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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