1 Chapter Two Organizations Organization Theory and Approach

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Chapter TwoChapter Two

Organizations Organizations Organization Theory and Organization Theory and

ApproachApproach

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Evolution of Organization TheoryEvolution of Organization TheoryPeriod 1 : Pre Scientific Management (1880)Period 1 : Pre Scientific Management (1880)

Period 2 : Classical Management (1880-1930)Period 2 : Classical Management (1880-1930)

Scientific Scientific Classical Classical Management TheoryManagement Theory Organizational Theory Organizational Theory

Period 3 : Behavioral Management (1930-1950)Period 3 : Behavioral Management (1930-1950)

Management ScienceManagement Science System Aproach System Aproach

Contingency ManagementContingency Management (1950 to present)(1950 to present)

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Evolution of Organization TheoryEvolution of Organization Theory

Pre Scientific ManagementPre Scientific Management– The model for organization Roman EmpireThe model for organization Roman Empire– The Feudal SystemThe Feudal System

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Scientific Management TheoryScientific Management Theory– Frederick W. Tailor (1856-1915)Frederick W. Tailor (1856-1915)

All job can be observed and analyzedAll job can be observed and analyzedThe best person for the job can be trained.The best person for the job can be trained.One best way is followed by training people and One best way is followed by training people and paying them on an incentive basispaying them on an incentive basisPut manager in charge of planning, preparing and Put manager in charge of planning, preparing and inspecting work. The worker simply carries out the inspecting work. The worker simply carries out the manager direction.manager direction.

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Classical Organizational TheoryClassical Organizational Theory– Henry Fayol (1841-1925)Henry Fayol (1841-1925)

Proposed fourteen principles of management such Proposed fourteen principles of management such as :as :

– Each subordinate receives orders from only one superior Each subordinate receives orders from only one superior (unity command)(unity command)

– Similar activities in organization should be grouped Similar activities in organization should be grouped together under one manager (unity direction)together under one manager (unity direction)

– These principles formed the foundation for modern These principles formed the foundation for modern management practice and organization design.management practice and organization design.

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Behavioural Management TheoryBehavioural Management Theory– Elton Mayo (1880-1949)Elton Mayo (1880-1949)

His research showed that when special attention is His research showed that when special attention is given to workers by management, productivity is given to workers by management, productivity is likely to increase orlikely to increase orThe positive treatment of employees improved The positive treatment of employees improved their motivation and productivity (Hawthorne effect)their motivation and productivity (Hawthorne effect)

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Behavioural Management TheoryBehavioural Management Theory– Douglas McGregor (1901-1964)Douglas McGregor (1901-1964)

Theory XTheory X– Most people must be controlled, directed and threatened Most people must be controlled, directed and threatened

with punishment to get them to do an adequate job.with punishment to get them to do an adequate job.

Theory YTheory Y– People are motivated best by satisfying their higher order People are motivated best by satisfying their higher order

needs for achievement.needs for achievement.

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Management ScienceManagement Science– Management science or operation researchManagement science or operation research– It is an approach often used for problem It is an approach often used for problem

solvingsolving– Mathematical models and computers are Mathematical models and computers are

frequently used in the analysis of the problemfrequently used in the analysis of the problem

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Systems approachSystems approach– Is a set of interralated and interdependent Is a set of interralated and interdependent

parts arranged in a manner that produces a parts arranged in a manner that produces a unified whole.unified whole.

– Two basic types of systems :Two basic types of systems :Closed systems : are influenced by and do not Closed systems : are influenced by and do not interact with their environmentinteract with their environmentOpen systems : are influenced by and do interact Open systems : are influenced by and do interact with their environmentwith their environment

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Transformation

Process

An Open SystemAn Open System

Environment

Raw MaterialsPeopleInformation resourcesFinancial resources

Input

BoundarySpanning

BoundarySpanning

Products andServices

Output

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Contingency Management TheoryContingency Management Theory– Attempts to integrate various existing Attempts to integrate various existing

management theories in order to find the best management theories in order to find the best approach for a particular situationapproach for a particular situation

ManagerManagerSub ordinateSub ordinateTaskTask SituationSituationOrganizationOrganizationEnvironmentEnvironmentTimingTiming

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Contingency Management TheoryContingency Management Theory– Contingency approach says that Contingency approach says that

organizations are different, face different organizations are different, face different situations, and require different ways of situations, and require different ways of managingmanaging

– Organization should design its structure to fit Organization should design its structure to fit its environment.its environment.

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Fit Between the Organization and Its Fit Between the Organization and Its EnvironmentEnvironment

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(a) Competitors, industry size and competitiveness, related issues(b) Suppliers, manufacturers, real estate, services(c) Labor market, employment agencies, universities, training schools, employees in other companies, unionization(d) Stock markets, banks, savings and loans, private investors(e) Customers, clients, potential users of products and services(f) Techniques of production, science, computers, information technology

(g) Recession, unemployment rate,inflation rate, rate of investment,

economics, growth(h) City, state, federal laws

and regulations, taxes,services, court system,

political processes(i) Age, values, beliefs,

education, religion,work ethic, consumer

and greenmovements

(j) Competition fromand acquisition by

foreign firms,entry into overseas

markets, foreign customs, regulations,

exchange rates

An Organization’s EnvironmentAn Organization’s Environment

(j)International

Sector

(d)Financial

ResourcesSector

(e)MarketSector

(f)Technolo

gySector

(g)EconomicConditions

Sector

(a)IndustrySector

(h)Government

Sector

(c)Human Resourc

esSector

(b)Raw

MaterialsSector

(i)Sociocultur

alSector

ORGANIZATION

DOMAIN

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The Competitive EnvironmentThe Competitive Environment

Information on Competitors

Competitive Barriers

Competitive Rivals

Competitor Analysis

Kinds of Markets

KeyConcepts

in theCompetitiveEnvironment

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The Economic EnvironmentThe Economic Environment

Interest Rates

Global Economy Rapid Change

KeyEconomic

Forces

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The Cultural and Social The Cultural and Social EnvironmentEnvironment

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Cultural Trend: The Changing Roles of Women

TimePoverty

Economic Power

CareerOpportunity

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Simple + Stable = Low Uncertainty

1. Small number of external elements and elements are similar

2. Elements remain the same of change slowly

Examples: soft drink bottlers, beer distributors, container manufacturers, food processors

Simple + Unstable = High-Moderate Uncertainty

1. Small number of external elements and elements are similar

2. Elements change frequently and unpredictably

Examples: E-commerce, fashion clothing, music industry, toy manufacturers

Complex + Unstable = High Uncertainty

1. Large number of external elements and elements are dissimilar

2. Elements change frequently and unpredictably

Examples: Computer firms, aerospace firms, telecommunications, airlines

Complex + Stable = Low-Moderate Uncertainty

1. Large number of external elements and elements are dissimilar

2. Elements remain the same or change slowly

Examples: Universities and insurance

Framework for Assessing Framework for Assessing Environmental UncertaintyEnvironmental Uncertainty

UncertaintyENVIRONMENTALCHANGE

STABLE

ENVIRONMENTAL COMPLEXITY

UNSTABLE

SIMPLE COMPLEX

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Mechanistic and Organic Mechanistic and Organic Organizational StructuresOrganizational Structures

Mechanistic structuresMechanistic structures: structures which : structures which are designed to induce (bring on) people are designed to induce (bring on) people to behave in predictable, accountable to behave in predictable, accountable wayswaysOrganic structuresOrganic structures: structures which : structures which promote flexibility, so people initiate promote flexibility, so people initiate change and can adapt quickly to changing change and can adapt quickly to changing conditionsconditions

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Figure : Mechanistic and Figure : Mechanistic and Organic StructuresOrganic Structures

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Figure Task and Role Figure Task and Role RelationshipsRelationships

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Lawrence & Lorsch: Differentiation, Lawrence & Lorsch: Differentiation, Integration, and the EnvironmentIntegration, and the Environment

Investigated how companies in different Investigated how companies in different industries differentiate and integrate their industries differentiate and integrate their structures to fit the environmentstructures to fit the environment

– Three industries that experienced different Three industries that experienced different levels of uncertainty: levels of uncertainty:

1.1. The plastics industryThe plastics industry2.2. The food-processing industryThe food-processing industry3.3. The container or can-manufacturing industryThe container or can-manufacturing industry

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Findings: Lawrence and Findings: Lawrence and LorschLorsch

When environment is perceived as more When environment is perceived as more unstable and uncertain:unstable and uncertain:– Effective organizations are less formalized, Effective organizations are less formalized,

more decentralized and rely more on mutual more decentralized and rely more on mutual adjustment.adjustment.

When environment is perceived as stable When environment is perceived as stable and certain:and certain:– Effective organizations have a more Effective organizations have a more

centralized, standardized, and formalized centralized, standardized, and formalized structure:structure:

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Uncertainty, Differentiation Uncertainty, Differentiation and Integrationand Integration

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Burns and StalkerBurns and Stalker

Also found that organizations need Also found that organizations need different kinds of structure to control their different kinds of structure to control their activities based on the environmentactivities based on the environment– Unstable and changing environmentUnstable and changing environment: Organic : Organic

structures are more effectivestructures are more effective– Stable environmentStable environment: Centralized, formalized : Centralized, formalized

and standardized characteristic of and standardized characteristic of mechanistic structures are more effectivemechanistic structures are more effective

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Figure Environmental Figure Environmental Uncertainty and StructureUncertainty and Structure

Documents

1 Chapter Two Organizations Organization Theory and Approach