UNIT I

Introduction toOrganization Theory

1Dr. S.M Tariq Zafar

ORGANIZATION THEORY

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1. What is Theory?

• Theory is a plan based on principles verifiable by experiment or observation.

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1.2. What is an Organization?

• An organization is a social entity that is goal-oriented; is designed as deliberately structured and coordinated activity systems, and is linked to the external environment.

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1.3. Definition of Organization Theory

• Organization theory is an applied science, the resulting knowledge of which is relevant to problem solving or decision making in enterprises.

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2. Evolution Of Management Thought

1890 1900 1910 1920 1930 1940 1950 1960 1970

Systematicmanagement

Administrativemanagement

Quantitativemanagement

Systemstheory

Current andfuture revolutions

Scientificmanagement

Humanrelations

Organizationalbehavior

Bureaucracy

Classical Approaches Contemporary Approaches

Contingencytheory

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2.1. Principles of Scientific Management

1. Separation of planning and doing2. Functional foremanship3. Job analysis4. Standardization5. Scientific selection and training of

workers6. Financial incentives7. Economy8. Mental revolution

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Frederick Winslow Taylor (1911)-Known to be the Father of Scientific Management-

• Scientific management is the systematic study of relationships between people and tasks for the purpose of redesigning the work process to increase efficiency.

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1. Separation of planning and doing

• The responsibility of workers and management should be properly divided and communicated so that they can perform them in an effective way and should be reward for the same.

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2. Functional foremanship2. Functional foremanship

PLANNING ADVISOR

1. Route clerk2. Instruction card clerk3. Time and cost clerk4. Shop disciplinarian

PRODUCTION ADVISOR

1. Gang boss2. Speed boss3. Repair boss4. Inspector

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3. Job analysis

Job Analysis is undertaken to find out the one best way of doing a job i.e. the way one which requires the least movements, consequently less time and cost.

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4. Standardization4. Standardization

Codify the new methods of performing tasks into written rules and standard operating procedures.

5. Scientific selection and training of workers5. Scientific selection and training of workers

Carefully select workers who possess skills and abilities that match the needs of the task, and train them to perform the task according to the established rules and procedures.

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6. Financial incentives

• Establish a fair or acceptable level of performance for a task, and then develop a pay system that provides a reward for performance above the acceptable level.

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7. Economy7. Economy

Careful use of resources saves cost of production. It brings in economy in operations. It results in high efficiency.

8. Mental revolution8. Mental revolution

Mental revolution denotes harmonious relationship between employees and employer. Cooperation of employees should be ensured by the managers to carry out the work in accordance with standards.

Workers should be considered as a part of organization.

Employer shouldn’t treat workers as mere wage earners.

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2.2. Henry Fayol’s 14 Principles of Management

1. Division of work2. Authority and responsibility3. Discipline4. Unity of command5. Unity of direction6. Scalar chain7. Subordination of individual interest to

general interest8. Remuneration9. Centralization10.Order11.Equity12.Stability of tenure of personnel13.Initiative14.Esprit de corps (Team Spirit)

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1. Division of Work

Specialization allows the individual to build up experience, and to

continuously improve his skills. Thereby he/she can be more

productive.

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2. Authority and Responsibility2. Authority and Responsibility

Authority is the right to give order and the power to extract

obedience. Responsibility is the obligation to perform the task

desired and directed by the superior authorities.3. Discipline3. Discipline

Employees must obey, but this is two-sided: employees will only obey orders if management play their part by providing good leadership

Discipline is systematic instruction intended to train a person, sometimes literally called a disciple to follow a particular code of conduct or order.

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4. Unity Of Command

Each worker should have only one boss with no other conflicting lines of command.

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People engaged in the same kind of activities must have the

same objectives in a single plan to ensure unity and coordination

in the enterprise.

5. Unity of Direction5. Unity of Direction

6. Subordination of individual interest to general interest

6. Subordination of individual interest to general interest

Individual interest should always be subordinate to general

interest.7. Remuneration7. Remuneration

Employee satisfaction depends on fair remuneration for everyone. This includes financial and non-financial compensation.

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8. Centralization

This principle refers to how close employees are to the decision-

Making process. It is important to aim for an appropriate balance.

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9. Scalar chain 9. Scalar chain

A hierarchy is necessary for unity of direction. Scalar chain refers to the number of levels in the hierarchy from the ultimate authority to the lowest level in the organization. Employees should be aware of where they stand in the organization's hierarchy, or chain of command

10. Order10. Order

Both material order and social order are necessary. The former minimizes lost time and useless handling of materials. The latter is achieved through organization and selection. The workplace facilities must be clean, tidy and safe for employees. Everything should have its place.

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11. Equity

Equity is a ‘combination of kindliness and justice’. Treating employees equally is important to achieve the goal.

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12. Stability of Tenure of Personnel 12. Stability of Tenure of Personnel

Employees work better if job security and career progress are assured to them. An insecure tenure and a high rate of employee turnover will affect the organization adversely.

13. Initiative13. Initiative

Allowing all personnel to show their initiative in some way is a source of strength for the organization.

Employees should be given the necessary level of freedom to create and carry out plans.

14. Esprit de Corps 14. Esprit de Corps

Organizations should strive to promote team spirit and unity.

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2.3. Max Weber’s Theory of Bureaucracy2.3. Max Weber’s Theory of Bureaucracy

Bureaucratic Theory was developed by a German Sociologist and political economist Max Weber (1864-1920). According to him, bureaucracy is the most efficient form of organisation. The organisation has a well-defined line of authority. It has clear rules and regulations which are strictly followed.

Max Weber developed the principles of bureaucracy as a formal

system of organization and administration designed to

ensure efficiency and effectiveness.

Bureaucracy is a body of non-elective

government officials who constitute

administrative policy-making group.

Bureaucracy referred to government

administration managed by departments

staffed with non-elected officials.

Bureaucracy is a system of government in which most of the important decisions are made by state officials rather than by elected representatives

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Principles of Bureaucratic Management

1. System of written rules and standard operating procedures that specify how employees should behave

1. Clearly specified hierarchy of authority

1. Selection and evaluation system that rewards employees fairly and equitably

1. Clearly specified system of tasks and role relationships

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Rule is a statement that tells you what is or is not allowed in a particular situation.

Procedure is a series of actions that are done in a certain order. 

Role is a part performed especially in a particular operation

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Weber’s Principles of Bureaucracy

1) A manager’s formal authority derives from the position he holds in the organization.

1) People should occupy positions because of their performance, not because of their social standing or personal contacts.

1) The extent of each position’s formal authority and task responsibilities and it’s relationship to other positions should be clearly specified.

1) Authority can be exercised effectively when positions are arranged hierarchically, so employees know whom to report to and who reports to them.

1) Managers must create a well-defined system of rules, standard operating procedures, and norms so they can effectively control behavior .

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Rules, SOPs and Norms

• Rules – formal written instructions that specify actions to be taken under different circumstances to achieve specific goals

• Standard Operating Procedures (SOPs) – specific sets of written instructions about how to perform a certain aspect of a task

• Norms – unwritten, informal codes of conduct that prescribe how people should act in particular situations

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A continuum of organizational design alternatives: from bureaucratic to adaptive organizations.

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3. Organization Design

Organization design is the structure of accountability and responsibility used to develop and implement strategies, human resource practices and information and business processes that activate those structures.

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• Functional structure – groups people according to the

business functions they perform, for example, manufacturing, marketing, and finance

• Divisional structure – groups together activities related to

outputs, such as type of product or customer

• Matrix structure – combines functional and divisional

chains of command to form a grid with two command structures

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Matrix Structure

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4. Organizational effectiveness

ORGANIZATIONAL EFFECTIVENESS IS A FUNCTION OF CLEAR

AUTHORITY AND DISCIPLINE WITHIN AN ORGANIZATION.

-HENRY FAYOL

ORGANIZATIONAL EFFECTIVENESS IS A FUNCTION OF

PRODUCTIVITY RESULTING FROM EMPLOYEE SATISFACTION

-ELTON MAYO

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• Efficiency focuses on activities

• Effectiveness focuses on results

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4.1. Benefits of Organizational Effectiveness

1.Improved profitability2.Increased customer retention3.Reduced customer complaints and warranty claims4.Reduced costs through less waste, rework5.Greater market share6.Increased employee involvement and satisfaction,

lower turnover7.Increased ability to attract new customers8.Improved competitiveness9.Improved customer satisfaction10.Improved management-employee relations11.Improved focus on key goals12.Improved communication13.Improved teamwork

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5. Determinants of organizational structure

Determinants of Organizational Structure are:

1.Contextual Determinants

(a) Internal

(i) Organizational size (ii) Technology (iii) organizational culture

(b) External

(i) Environment (ii) National culture

1.Organizational Design

(a) Strategic Choice

(b) Institutional Isomorphism

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Contextual determinants are internal

and external. Internal contextual determinants are:

Organizational Size

Organizational size like the number of people in an organization, the physical capacity of an organization, organizational inputs and out-put and financial resources determines organizational structure.

Technology

Technology that involves acting on and/or changing an object from one state to another is an internal determinant of organizational structure.

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Determinants of organizational structure

Organizational culture Organizational culture also determines the structure of an organization. Organizational culture is the behavior of humans who are part of an organization and the meanings that the people attach to their actions.

External contextual determinants are:

Environment

Environment is an external contextual determinant of organizational structure.Environment includes concepts such as demography, economy, naturalforces, technology, politics, and culture.

National culture

The set of norms, behaviors, beliefs and customs that exist within the population of a sovereign nation. International companies develop management and other practices in accordance with the national culture they are operating in.

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Determinants of organizational structure

Organizational design determinants are:

Strategic choice

Strategic choice is an organizational design determinant of organizational structure. The choice of the structure is with the organization itself depending on the nature of the business.

Institutional isomorphism

Institutional isomorphism is also an organizational design determinant of organizational structure. It makes use of already existing organizational forms.

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