Organization

Design and
Development

08MBAHR341
 Module 1
Organization:

Nature and scope, definitions

Overview of various components and structure
Evolution of organization theory
Organizational theories, Images of organization

ORGANIZATIONAL EFFECTIVENESS- defn, importance & approaches,

the goal attainment appraoch, the system approach, the strategic
approach.
 What is Organization?
In simple terms:
“Organization implies a formalized
intentional structure of roles or positions”

Broad definition:
“An Organization is a consciously
coordinated social entity, with a relatively
identifiable boundary, that functions on a
relatively continuous basis to achieve a
common goal or set of goals”.
 Nature & Scope
/Features of Organization
• Large size
• Complexity
• Mutually agreed purpose
• Pattern of behavior
• Continuing systems
• Differentiation
• Coordinating
• Conscious rationality
• Import – conversion – Expert
• Interaction with other systems
 Types of organizations
• Mutual benefit agreement
• Business concern
• Service organization –Commonweal
organization
 Overview of various
components
• What is an organization?
An Organization is a consciously
coordinated social entity, with a
relatively identifiable boundary, that
functions on a relatively continuous
basis to achieve a common goal or
set of goals”.
 What is Organization
Structure?
Organization Structure defines how task are
to be allocated, who reports to whom, and
the formal coordinating mechanisms and
interaction patterns that will be followed.
It is having three components.
 Three components of
Organization structure
1. Complexity
2. Formalization
3. Centralization
 What is Organization Design?

• Organization Design emphasizes the

management side of organization
theory. It is concerned with
constructing and changing an
organization’s structure to achieve
the organization’s goals.
 What is Organization
theory?
• Organization theory is the discipline that
studies the structure and design of
organizations. It refers to both the
descriptive and prescriptive aspects of the
discipline.
• It describes how organizations are actually
structured and offers suggestions on how
they can be constructed to improve their
effectiveness.
 Organization theory Vs.
Organizational Behavior
• Organizational Behavior takes a micro view –
emphasizing individuals and small groups. It
focuses on behavior in organizations and a
narrow set of employee performance and attitude
variables. Employee productivity, absenteeism,
turnover and job satisfaction etc.
• Organizational Theory take a macro prospective.
As it is not only concern with employees
performance but with the overall orgn’s ability to
adapt and achieve its goals.
 Why study Organization
Theory ?
• Organizations are dominant form of
institutions in our society.
• It pervade all aspects of contemporary life.
• To develop new theories
• Pursuing a career
• To get a particular degree or certificate
 The Biological Metaphor
• A metaphor is a popular device for
making comparisons.
• Here we will compare organization
with living organisms like plants,
animals, or human beings. We call
this comparison the biological
metaphor.
 The System perspective
• It offers better insight into the workings of
an organization.

• A system is a set of interrelated and

interdependent parts arranged in a
manner that produces a unified whole.
• They take inputs, transform them and
produce some output.
 Types of Systems
• Closed system: A perfect closed system
would be one that receives no energy from
an outside source and from which no
energy is released to its surroundings.
• Open system recognizes the dynamic
interaction of the system with its
environment.
 Basic Open System

Environment

Systems

Transformation
Inputs Process Outputs

Environment
 Characteristics of an Open
system
• Environment awareness
• Feedback
• Cyclical character
• Negative entropy
• Steady state
• Movement towards growth and expansion
• Balance of maintenance and adaptive
activities
• Equifinality
 The Life-cycle Perspective
• Organizations are born, grow, and
eventually die (though it may take
hundred years or more).
• Here we will build on the biological
metaphor of organizations
proceedings through life-cycle
stages.
 Definition of a Life Cycle
“A life cycle refers to a pattern of predictable
change. We propose that organizations
have life cycles whereby they evolve
through a standardized sequence of
transitions as they develop over time”

Here we are saying that there are distinct

stages through which organizations
proceed, transition from one stage to
another are predictable rathe than random
occurrences.
 Life Cycle Stages
It is five stage model:

3. Entrepreneurial stage
4. Collectivity stage
5. Formalization and control stage
6. Elaboration of structure stage
7. Decline stage
Organization Life cycle
Maturity
Decline

Growth

Formation
Do Life cycle stages correlates
with an organization’s
chronological age?
 THE EVOLUTION OF
ORGANIZATION THEORY
 The current state of organization theory is the result of an
evolutionary process

 Over a period of many decades, academics and

practitioners from diverse background and with diverse
perspectives have studied and analyzed organizations.

 Theories have been introduced, evaluated and refined over

time ; new insights tend to reflect the limitations of earlier
theories.
 Evolution of contemporary organization
theory:
Approximate 1900 - 1930- 1960 1960-1975 1975- ?
Time 1930
Frame
System Closed Closed Open Open
perspective
Ends Rational Social Rational Social
perspective
Mechanical People and Contingency Power and
Central efficiency human design politics
theme relations

Theoretical Type 2
Type 1 Type 3 Type 4
classification
 DEVELOPING A FRAMEWORK:
• There are two underlying dimensions in the
evolution of organization theory.

• The first dimension reflects that organizations are

system.
• Prior to about 1960, organization theory tended
to be dominated by a closed system perspective.
Organizations were seen as essentially
autonomous and sealed off from their
environment.

• Beginning around 1960, organization began to

take on a distinctly open – system perspective.
• The second dimension deals with the ends
of organization theory. Here again two
opposed positions.
• The rational perspective argues that the
structure of an organization is conceived
as a vehicle to effectively achieve specified
objectives.
• The social perspective emphasizes that
structure is primarily the result of the
conflicting forces by the organization’s
constituents who seek power and control.
• The early approaches to organization theory in this century
conceived of organization as mechanical device to achieve
goals.
 TYPE 1: To describe theorists in this era.
 TYPE 2: Theorists operated under closed- system
assumption but emphasized the informal relations and non
economic motives operating in organizations. Management
could design formal relationships, rules, but there were
informal pattern of communication , status, norms, and
friendship created to meet the social needs of organization
members.
 TYPE 3: Theorists during the 1960s and early 1970s saw
organizations as the vehicle for achieving goals. They
concentrated on size, technology, and environmental
uncertainty as the major contingency variables that
determined what the right structure for an organization
should be.
• TYPE 4: The social perspective has made a comeback
but in an open- system framework. The result is the
viewpoint that structure is not the rational effort by
managers to create the most effective structure but rather
the outcome of the political struggles among coalitions
within the organization for control.
 TYPE 1 THEORISTS:
• The type 1 theorists , also known as the classical school,
developed universal principles or models that would apply in all
situations. The essentially perceived organization as closed
systems created to achieve goals efficiently. The important
contribution here are:

• Fredrick Taylor and Scientific Management:

 Fredrick Winslow Taylor’s “principles of scientific management”
marked the beginning of serious building in the field of
management and organization.
 He proposed four principles of scientific management.
 He argued that significant increase in productivity is due to;
vii. The replacement of rule -of – thumb method for determining
each element of a worker’s job with scientific determination.
viii. The scientific selection and training of workers.
ix. The co-operation of management and labor to accomplish work
objectives; in accordance with the scientific method.
x. A more equal division of responsibility between managers and
workers , with the former doing the planning and supervising,
and the latter doing the execution.
2. Henry Fayol and Principles of Organization:
Fayol sought to develop general principles applicable to all managers at all
levels of the organization and to describe the functions a manager
should perform.
Fayol proposed fourteen principles of management, viz ;
• Division of work.
• Authority.
• Discipline .
• Unity of command.
• Unity of Direction.
• Subordination to the individual interests to the general interests.
• Remuneration.
• Centralization.
• Scalar chain.
• Order.
• Equity.
• Stability of tenure of personnel.
• Initiative.
• Espirt de corps.
3. Max Weber and Bureaucracy:
b) The third major contribution made by Type 1 theorists
was the “ideal- type” organization structure proposed by
the German sociologist , Max Weber.
c) He called this ideal structure as Bureaucracy.
d) It was characterized by:
5. Division of labor.
6. A clear authority hierarchy.
7. Formal selection procedures.
8. Detailed rules and regulations.
9. Impersonal relationship.
b) Weber’s description of bureaucracy became the design
prototype for the structure of most of today’s large
organization.
4. Ralph Davis and Rational planning:
• The final contribution of the Type 1 theorist that we will
introduce is the rational- planning perspective, which proposed
that structure was the logical outcome of the organization’s
objective.
• Davis stated that the primary objective of the business firm is
economic service.
• No business can survive if it doesn’t provide economic values.
• The economic value is generated by the activities members
engage in to create the organization’s products or services.
• These activities then link the organization’s objectives to its
results.
• It is management job is to group these activities together in
such a way as to form the structure of the organization.
• Davis concluded, therefore, that the structure of the
organization is contingent upon the organization’s objective.
• The rational- planning perspective offered a simple and straight
forward model for designing an organization’s objectives .
• Management’s formal planning determines the organizations
objectives.
•
TYPE 2 THEORISTS:
The common theme among Type 2 theorist is recognition of
the social nature of the organizations.
1. Hawthorne studies, devised by Western electric industrial
engineers to examine the effect of various illumination levels
on worker productivity.
• Control and experimental groups were established.
• The experimental group was presented with varying intensity
of illumination, while the controlled unit worked under a
constant illumination intensity .
• The engineers had expected individual output to be directly
related to the intensity of light.
• As the light level was increased in the experimental unit,
output rose for each group.
• As the light level was dropped in the experimental
group, productivity continued to increase in both.
• The productivity decrease was observed in the
experimental group only when the light intensity has
been reduced to that of moonlight.5
 Contd.,
2. Chester Barnard and
Cooperative system:
 Merging the ideas of Taylor, Fayol, and Weber with the
results from the Hawthorne studies led to the conclusion
that organizations are cooperative systems.
 They are composed of tasks and people that have to be
maintained at an equilibrium state. Attention only to
technical or the needs of people who do the jobs sub
optimizes the system.
 He presented his idea in the “The Functions of the
Executive”.
 He challenged the classical view that authority flowed from
the top down by
arguing that authority should be defined in terms of the
response of the subordinate ; he introduced the role of the
 Contd.,
3. Douglas Mc Gregor and Theory X –
Theory Y:
 Douglas Mc Gregor thesis that there are two distinct
views of human beings: one basically negative- Theory X
and other basically negative Theory Y.
 Under Theory X , four assumptions are held by
managers:
4. Employees inherently dislike work and, whenever
possible, will attempt to avoid it.
5. Since employees dislike work, they must be coerced,
controlled, or threatened with punishment to achieve
desired goals.
6. Employees will shirk responsibilities and seek formal
direction whenever possible.
7. Most workers place security above all other factors
 Contd.,
• In contrast to these negative views of human beings’ Mc
Gregor listed four other assumptions that he called
Theory Y:
2. Employees can view work as natural as rest or play.
3. Human beings will exercise self- direction and self –
control if they are committed to the objectives.
4. The average person can learn to accept, even seen,
responsibility.
5. Creativity – that is , the ability to make good decisions.
 Contd.,
4. Warren Bennis and the Death of
Bureaucracy:
 Warren Bennis, claimed that bureaucracy’s centralized
decision making, impersonal submission to authority, and
narrow division of labor was being replaced by
decentralized and democratic structures organized around
flexible groups.
 Weber argued that bureaucracy was the ideal organization ,
Warren Bennis argued the other extreme- conditions now
pointed to flexible adhocracies as the ideal organizational
form.
 TYPE 3 THEORISTS:
The conflicts between the thesis and antithesis led to a synthesis that
provided better guidance to managers. That synthesis was a
contingency approach.
2. Herbert Simon and Principles Backlash:
 The contingency movement gained its momentum in the
1960s.
 Herbert Simon recognized in the 1940s that Type 1
principles would have to give way to a contingency
approach.
 Simon noted that most classical principles were nothing
more than proverbs, and many contradicted each other.
 He argued that organization theory needed to go beyond
superficial and oversimplified principle to a study of the
conditions under which competing principles were
applicable.
 Still, the 1950s and 1960s tended to be dominated by
 Contd.,
2. Katz and Kahn’s Environmental Perspective:
 Daniel Kantz and Robert Khan’s book The Social Psychology
of Organizations, was a major impetus toward promoting
the Type 3 open- system perspective to organization
theory.
 Their book provided a convincing description of the
advantages of an open- system perspective for examining
the important relations of an organization with its
environment and the need for organization to adapt to a
changing environment if they are to survive.
 Since Katz and Kahn’s work, numerous theorists
have investigated the environment- structure
relationship.
 No current discussion of organization theory
would be complete without a thorough
assessment of environment as a major
 CONTD.,
3. The Case for Technology:
 Research in the 1960s by Joan Woodward
and Charles Perrow, as well as the
conceptual frame work offered by James
Thompson, have made an impressive case
for the importance of technology in
determining the appropriate structure for
an organization.
 As with environment, no contemporary
discussion of organization theory would be
complete without consideration of
technology and the need for managers to
match structure with technology.
 CONTD.,
4. The Aston Group and
Organization size:
 In addition to advocates of environment
and technology, the Type 3 theorists
include those who advice organization size
as an important factor influencing
structure.
 Large organization have been shown to
have many common structural
components.
 TYPE 4 THEORISTS:
1. March and Simon’s Cognitive Limits
to Rationality:
 March and Simon challenged the classical notion of
rational or optimum decisions.
 They argued that most decision maker selected
satisfactory alternatives.
 March and Simon called for a revised model of
organization theory- one different from the rational
co-operative systems view.
 This revised model would recognize the limits of a
decision’s maker rationality and acknowledge the
presence of conflicting goals.
 Contd.,
2. Pfeffer’s Organizations as
political Arenas:
 Jeffrey Pfeffer has built on March and Simon’s
work to create a model of organization theory till
encompasses power coalitions,
Inherent conflicts over goals, and organizational-
design decisions that favor the self- interest of
those in power.
 Pfeffer proposes that control in organizations
becomes an end rather than merely a means to
rational goals such as efficient production of
output.
 Organizations are coalitions composed of varying
groups and individuals with different demands.
Organizational Theories
Images of Organization
 ORGANIZATIONAL
EFFECTIVENESS:
• Organizational effectiveness is
central theme in organization theory.
• In fact it is difficult to conceive of a
theory of organizations that does not
include the concept of effectiveness.
 IMPORTANCE OF ORGANIZATIONAL
EFFECTIVENESS
• Every discipline in the administrative science
contributes in some way to helping managers
make organization more effective.
• What makes an organization effective? That
answer is, the proper organization structure.
• Organization theory, as a discipline, clarifies
which organization structure will lead to, or
improve, organizational effectiveness.
 In search of a definition:
• The early approach to OE- which probably lasted
through the 1950s- was innocently simple.
Effectiveness was defined as the degree to which
an organization realized its goals.
• The 1960s and early 1970s saw a proliferation of
OE studies. A review of these studies identified
thirty different criteria- all purporting to measure
“organizational effectiveness”. They are listed in
table,
Organizational effectiveness criteria:
1. Overall effectiveness. 15. flexibility/ adaptation.
2. Productivity. 16. planning and goal setting.
3. Efficiency. 17. goal consensus.
4. Profit. 18. internalization of organizational
5. Quality. goals.
6. Accidents. 19. stability.
7. Growth. 20. Role and norm congruence.
8. Absenteeism. 21. Managerial interpersonal skill.
9. Turnover. 22. Managerial task skills.
10. Job satisfaction. 23. Information management and
11. Motivation. Communication.
12. Morale. 24. Readiness.
13. Control. 25. utilization of environment.

14. Conflict/ cohesion 26. Evaluation by external entities.

 Contd.,
• It is occasionally lost on researchers
that regardless of whether they can
define and label a phenomenon, that
phenomenon is still real and
continues to function.
 Approaches to OE:
1. THE GOAL- ATTAINMENT
APPROACH.
2. THE SYSTEMS APPROACH.
3. THE STRATEGIC –
CONSTITUENCIES APPROACH.
4. THE COMPETING- VALUES
APPROACH.
 1.THE GOAL- ATTAINMENT
APPROACH: (GAA)
• An organization is, by definition, created
deliberately to achieve one or more
specified goals. It should come as no
surprise then to find that goal attainment
is probably the most widely used criterion
of effectiveness.
• The goal- attainment approach states that
an organization’s effectiveness must be
appraised in terms of the accomplishment
of ends rather than means. It is the
bottom line that counts.
• Popular goal- attainment criteria include
profit maximization.
 Assumptions of GAA:
• It includes 5 assumptions, viz;
2. Organization must have ultimate goals.
3. These goals must be identified well
enough to be understood.
4. These goals must be few enough to be
manageable.
5. There must be general consensus or
agreement on these goals.
6. Finally , progress toward these goals
must be measurable.
 Making goals operative:
• How would managers operationalize the goal- attainment
approach?
• The key decision maker would be the group from which the
goals would be obtained.
• This group would be asked to state the organizations
specific goals.
• Once identified, it would be necessary to develop some
measurable device to see how well the goals are being met.
• The goal- attainment approach is probably most explicit in
management by objective (MBO).
• MBO is a well – known philosophy of management that
assesses an organization and its members by how well they
achieve specific goals that supervisors and sub- ordinates
have jointly established.
• MBO represents the ultimate in a goal- oriented approach
to effectiveness.
 PROBLEMS:
• It is one thing to talk about goal is
general.
• When an organization states officially as
its goals does not always reflect the
organization’s actual goals.
• An organization short- term goals are
frequently different from its long- term
goal.
• The fact that organizations have multiple
goals also creates difficulties.
• Organization goals do not direct behavior.
 Value to managers:
• Organizations exist to achieve goals- the problem lie in
their identification and measurement. The validity of
these goals identified can probably be increased
significantly by;
2. Ensuring that input is received from all those having a
major influence on formulating the goals, even if they are
not part of senior management.
3. Including actual goals obtained by observing the behavior
of organization members.
4. Recognizing that organization’s pursue both short and
long term goals.
5. Insisting on tangible, verifiable, and measurable goals
rather than relying on vague statement that merely
mirror societal expectations.
6. Viewing goals as dynamic entities that change over time
rather than as rigid or fixed statements of purpose.
 Contd.,
• If manager are willing to confront the
complexities inherent in the goal-
attainment approach, they can
obtain reasonably valid information
for assessing an organization’s
effectiveness. But there is more to
OE than identifying and measuring
specific ends.
2. THE SYSTEM APPROACH:
• Organizations acquire inputs, engage in transforming
processes, and generate outputs.
• Goals focus on outputs. But an organization should also be
judged on its ability to acquire inputs, process these inputs,
channel the outputs, and maintain stability and balance.
Another way to look at OE, therefore , is through a system
approach.
• In the system approach, end goals are not ignored; but
they are only one element in a more complex set of
criteria.
• System model emphasize criteria that will increase the
long- term survival of the organization- such as the
organization’s ability to acquire resources, maintain itself
internally as a social organism, and interact successfully
with its external environment. So the systems approach
focuses not so much on specific ends as on the means
needed for the achievement of those ends.
ASSUMPTIONS:

1. A system approach to OE implies

that organizations are made up of
interrelated subparts.
2. Effectiveness requires awareness
and successful interactions with
environmental constituencies.
3. Survival requires a steady
replenishment of those resources
consumed.
 Making systems operative:
• Let us now to the issue of how managers can apply the
systems approach.
• First, we look at sampling of criteria that system advocates
consider relevant; then we consider the various ways in
which managers measure these criteria.
• The system view looks at factors such as relations with the
environment to assure continued receipt of input and
favorable acceptance of outputs, flexibility of response to
environmental changes, the efficiency with which the
organization transforms inputs to outputs, the clarity of
internal communications, the level of conflict among
groups, and the degree of employee job satisfaction.
• It has been suggested that the critical system
interrelationships can be converted into OE variables or
ratios. These could include output/input (o/p),
transformations/inputs (T/I), and so on.
 Examples of effectiveness measure of system for
different types of organization:

System Business Hospital College

variables firm
O/I Return on Total no. of No. of faculty
publications
investment patients
treated.
T/I Inventory
turnover
Capital invested Cost of
in medical information
technology systems

T/O Sales volume Total no. of No. of student

patients treated graduated

Change in Change in no. Change in

working of patients student
capital treated enrollment
 Problems:
• The two most telling shortcomings of the
systems approach relate to measurement
and the issue of whether means really
matter.
• Measuring specific end goals may be easy
compared with trying to measure process
variables such as “clarity of internal
communications”.
• In sports, it is frequently said that “it is
whether you win or lose that counts, not
how you play the game!” It can be argued
that the same holds true for organizations.
If ends are achieved, are means
important?
 Value to managers:
• Managers who use a systems approach to
OE are less prone to look for immediate
results. They are less likely to make
decisions that trade off the organization’s
long- term health and survival for ones
that will make them look good in the near
term.
• The systems approach increases the
manager’s awareness of the
interdependency of organizational
activities.
• A final plus for the systems approach is its
applicability where end goals either are
very vague or defy measurement.
3. The strategic- constituencies
approach:
• A more recent perspective on OE- the Strategic-
constituencies approach- proposes that an
effective organization is one that satisfies the
demand of those constituencies in its
environment from whom it requires support for
its continued existence.
• This approach is similar to the system view, yet it
has a different emphasis.
• The strategic- constituencies view is not
concerned with all of the organizations
environment.
• It seeks to appease only those in the
environment who can threaten the organization’s
survival.
 Assumptions:
• The strategic- consistency approach views
organization’s very differently. They are assumed
to be political arenas where vested interest
compete for control over resources. In such a
context, organizational effectiveness becomes an
assessment of how successful the organization
has been at satisfying those critical
constituencies, upon whom the future survival of
the organization depends.
• The “political arenas” metaphor further assumes
the organization has a number of constituencies.
• No goal or set of goals that management selects
is value free.
Making strategic constituencies
operative:
• The manager wishing to apply this perspective
might begin by asking of the dominant coalition
to identify the constituencies they consider to be
critical to the organization’s survival.
• This list could then be evaluated to determine the
relative power of each.
• The third step requires identifying the
expectations that these constituencies hold for
the organization.
• The strategic- constituencies approach would
conclude by comparing the various expectations,
determining common expectations and those that
are incompatible, assigning relative weights to
the various constituencies, and formulating a
preference ordering of these various goals for the
organization as a whole.
 Typical OE criteria of selected
strategic constituencies:

constituencies Typical OE criteria

owners Return on investment; growth in earnings

Employees Compensation; fringe benefits; satisfaction with

working conditions
customers Satisfaction with price, quality, service.

suppliers Satisfaction with payments; future sales potential

creditors Ability to pay indebtedness.

Competitive wages and benefits; satisfactory
unions
working conditions; willingness to bargain fairly
Local community officials Involvement of organization’s members in local affairs;
lack of damage to the community’s environment
Government agencies Compliance with laws; avoidance of penalties and
 Problems:
• The task of separating the strategic
constituencies from the larger
environment is easy to say but
difficult to do in practice.
• Identifying the expectations that the
strategic constituencies hold for the
organization presents a problem.
How do you tap that information
accurately?
 Value to managers:
• If survival is important for an
organization, then it is incumbent
upon managers to understand just
who it is (in terms of constituencies)
that survival is contingent upon.
• Decrease the chance that they might
ignore or severely upset a group
whose power could significantly
hinder the organization’s operations.
 4. The competing- values
approach:
• If we are to have a comprehensive understanding
of OE, it would seem worthwhile to identify all of
the key variables in the domain of effectiveness
and then determine how the variables are
related. The competing- values approach offers
just such an integrative framework.
• The main theme underlying the competing-
values approach is that the criteria you value and
use in assessing an organization’s effectiveness-
return on investment, market share, new-
product innovation, job security- depends on who
you are and the interests you represent.
 Comparing the four OE
approaches:
APPROACH DEFINITION WHEN USEFUL
Goal An organization is The approach is
effective to the preferred when…
attainment extent that… it goals are clear, time
accomplishes its bound & measurable.
stated goal.
systems It acquires needed A clear connection
resources. exist between inputs
& outputs.
Strategic All strategic Constituencies have
powerful influence on
constituencies are at
constituencies least minimally the organization, and
respond to demands.
satisfied
Competing The emphasis of the
organization in the 4
The organization is
unclear about its own
values major areas matches emphases, or changes
constituent in criteria over time are
Thank You