Organisations Definition of Organisations Organisations are constructed mechanism for controlling and coordinating human activities and symbolic

and physical resource in order to achieve certain objectives. The Economic Problem Where needs would not be met as a result of scarcity of resources. What is the optimal allocation of the scarce resources over the alternative uses that can be made of them? Resources that are optimally allocated are said to be used with efficiency. The Division of Labour Refers to the splitting of composite tasks into their component parts and having these performed separately. Division of Labour leads to productivity increases. Economies of Specialisation More efficient than unspecialised production. When work is split into specific tasks, we may select one that particularly suits our own needs and capabilities. When we specialise, we can devote all our attention to improving our skills and performance. Can learn more from experience and can use that experience to devise methods to further improve our performance. Division of Labour leads to specialisation, which allows for efficiency gains. For individuals, specialisation allows higher levels of performance to be reached. Limits of specialisation are reached when the satisfaction gained from higher performance is outweighed by the dissatisfaction from too narrow an area of application of ones skill (resulting in boredom and frustration). Too much specialisation can have a negative impact. Coordination Exchange Goods and services are exchanged whenever the right to use them is transferred. These exchanges take place through markets. Exchange of goods is beneficial to both parties. Transaction Whenever exchange takes place, we speak of an economic transaction. Due to division of labour and specialisation, innumerable transactions occur in society (we need specialised goods/services of others). Coordination How is the coordination achieved within an economic system? Coordination includes exchange and transaction. Markets and Organisation Price system is the coordinating device that takes care of allocation. The price contains all the information you need to base your transaction on (known as sufficient statistic) For markets, the price system is the coordinating device. For organisations, the price system is replaced by authority as a coordinating mechanism. Ideal market prices act as sufficient statistics for individuals decision making. Ideal organisation forms of coordination of transactions that do not use prices to communicate information between the transacting parties. Markets and Organisation are the two types of coordination. Information The coordination mechanism that we will observe will depend on the information requirements. Information explains how coordination will take place. Markets are characterised by the operation of prices as sufficient statistics (price contains all the information needed for the coordination of transactions). The price mechanism is therefore a perfect way to represent information to all parties. However, price mechanism can be substituted by organisation coordination mechanism. This occurs when price cannot absorb all the information needed to execute a transaction.

Also many situations in which the price mechanism is totally incapable of performing its coordination function. There may be fundamental information problems that cannot be resolved by the price system, which may be dealt with by organisational coordination. Market/Organisation mix depends on the particular information requirements of the situation. Information and communication costs determine the relative efficiency of the two coordination mechanism. Lecture and course guide notes Control mechanisms means by which the actions/behaviour of actors are motivated in order to achieve the objectives of the organisation. Coordination mechanisms means by which the actions/behaviour of actors are brought into alignment with each other in order to achieve the objectives of the organisation. Study of Organisations Organisational Behaviour The study of the structure and functioning and performance of organisations and the behaviour of groups and individuals within them. Economists approach to the study of organisation Economists assume that economic actors will behave rationally (individuals seek the best outcome they can secure for themselves). Economists will centre their attentions upon the balance of costs and benefits in certain actions, thus choosing the most efficient option available. Economists will concentrate upon monetary consequences to measure the success of the outcomes. Individuals look out for themselves. They disregard any altruistic (positive effect on others) and spiteful (negative effect on others) sentiments. Also assumes that actors have identical preferences (homogenous). These are just assumptions made for theoretical simplifications. Sociologists and psychologists will criticise economists for making unreal assumptions.