CHAPTER 1: ORGANIZATIONS AND ORGANIZATIONAL EFFECTIVENESS
1. Explain why organizations exist and the purposes they serve. 2. Describe the relationship between organizational theory and organizational design and change, and differentiate between organizational structure and culture. 3. Understand how managers can utilize the principles of organizational theory to design and change their organizations to increase organizational effectiveness. 4. Identify the three principal ways in which managers assess and measure organizational effectiveness. 5. Appreciate the way in which several contingency factors influence the design of organizations.
This chapter discusses organizations, organizational theory, and the importance of organizational design. An organization is a tool that people use to coordinate their actions to obtain something they desire or value—to achieve their goals. Organizational theory is the study of how organizations function and how they affect and are affected by the environment in which they operate. Organizational structure is the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve an organization’s goals. Organizational culture is the set of shared values and norms that control organizational members’ interactions with each other and with suppliers, customers, and other people outside the organization.
Organizations are value-creation systems that take inputs from the environment and use skills and knowledge to transform these inputs into finished goods and services. The use of an organization allows people jointly to increase specialization and division of labor, use large-scale technology, manage the organizational environment, economize on transaction costs, and exert power and control—all of which increase the value the organization can create.
Organizational design is the process by which managers select and manage aspects of structure and culture so an organization can control the activities necessary to achieve its goals. Organizational design has important implications for a company’s competitive advantage, its ability to deal with contingencies and manage diversity, its efficiency, its ability to generate new goods and services, its control of the environment, its coordination and motivation of employees, and its development and implementation of strategy. Organizational change is the process by which organizations redesign and transform their structures and cultures to move from their present state to some desired future state to increase their effectiveness. The goal of organizational change is to find new or improved ways of using resources and capabilities to increase an organization’s ability to create value and hence performance.
Managers can use three approaches to evaluate organizational effectiveness: the external resource approach, the internal systems approach, and the technical approach. Each approach is associated with a set of criteria that can be used to measure effectiveness and a set of organizational goals.
1.1 What is an Organization?
Organizations are extremely important in today’s world. Though organizations are intangible, they have a role to play in all areas of our life. A grouping of people and other resources to produce goods and services is the essence of organizing. An organization is a tool people use to coordinate their actions to obtain something they desire or value—that is, to achieve their goals. Today organizations are rapidly growing in number as they seek to respond to the changing tastes and needs of consumers. Entrepreneurship is the term used to describe the process by which people recognize opportunities to satisfy needs and then gather and use resources to meet those needs.
How Does an Organization Create Value?
Value creation takes place at three stages: input, conversion, and output. The way...
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