Lecture 2

Theories of Management

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Theories of Management

The History of Organization Design Theory Exercise

THE SCENARIO: You are a high level manager in charge of
quality at Boeing. The 3rd 757, in three years, has just crashed
killing 147 people. Once again, the data suggest the
manufacturing processes used to assemble the engine may be at
fault.
THE TASK: Using to theoretical perspective assigned to you,
come up with a strategy to deal with this problem.
Remember: The purpose of this exercise is to illustrate the
major tenets of and the differences among each of the 4
theoretical perspectives. Keep this foremost in mind when
developing your approach to dealing with the problem.
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Theories of Management

Classical Management Theory Behavioral

Correlates
Classical theorists paid little attention to the human
aspects of organization:
technical problem

Organization was seen as a

Mechanistic organizations
discourage creativity and innovation,
conformity, compliance, and strict adherence to
standards are rewarded
encourage people to keep their place and obey orders
rather than to take an interest in, challenge, and
question what they are doing
In the extreme may erode
of the human spirit and capacity
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for spontaneous action

Theories of Management

Conditions Which Support Mechanistic Forms

of Organization
Mechanistic approaches to organization work well only
under conditions where machines work well:

straightforward task
stable environment
precision in outputs is valued
clear accountability is desirable
human machine parts are compliant

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Theories of Management

Why Are Mechanistic Designs Inadequate for

Many (Not All) Modern Day Organizations?
Overlooks the fact that tasks facing orgs are often much more
complex, uncertain, and difficult than those performed by
machines.
Great difficulty adapting to changing circumstances - designed to
achieve predetermined goals (single purpose machines).
Under changing circumstances flexibility and creative action
become more important than efficiency.
Compartmentalization created by strictly defined hierarchic
levels, functions, and roles creates difficulties when trying to
solve problems in real time that affect multiple areas/functions.
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Theories of Management

Human Resource/Relations Theorists - Key

Contributions
Human capital seen as a valued commodity
Recognized existence of higher order needs as important
motivators of performance.
Motivators seen as both extrinsic and intrinsic, i.e the task
itself as well as contingent rewards can motivate.
The idea of integrating the needs of individuals and orgs
became a powerful force and influenced organization
design.
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Theories of Management

Systems / Contingency Theorists - Key

Contributions

Organizations seen as open systems

organizational design must take into account the external
environment
Organizations are comprised of interrelated parts
a change in one part affects other parts as well
There is no one best way to organize:
Organizations face differing amounts of uncertainty
Different approaches to organizing may be necessary to cope
with uncertainty
Sources of uncertainty include the production task, the
external environment, the organizations competitive strategy,
etc.
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Organizational forms seen to vary on a continuum from

Theories of Management

Structural Contingency Theory

Contextu
al
Factors
Strategy

Environment
Orgl Tech
Size
Orgl
Culture

Uncertai
nty
(The need to
process
information)

Organizati
on
Structure
(The capacity
to process
information)

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Behavi
or

Organizati
on
Outcomes
, e.g.
Innovation
Adaptability
Efficiency

Commitment/
Satisfaction

Introduction and Overview

Organizational Behavior & Design

Model
Technology

Economy

Leadership
Leadership
Individual
Individual &
& Org.
Org.
Outcomes
Outcomes

The
The Organization
Organization
Competitors
Industry
Demographics

Government

Teams
Teams
Natural Environment

Workers
Workers
(non-leaders)
(non-leaders)

Trends

External Environment
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Customers

Strategy, Organization
Design,
and Effectiveness
Organization Theory and
Design
Eleventh Edition
Richard L. Daft
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Strategy Direction and

Organization Design
Organizational
goal - a desired
state of affairs
that an
organization
attempts to reach

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Organizational Purpose
Strategic intent - organizations energies and
resources are directed toward a focused,
unifying, and compelling goal
Mission
Competitive Advantage
Core Competence

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Operating Goals
Overall Performance
Resources
Market
Employee Development
Innovation and Change
Productivity

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Mission Statement for

Machias Savings Bank

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Organizational Operating
Goals

What do you think of the pyramid? Are the

blocks correct
14 in size and place?

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The Importance of Goals

15

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Selecting Strategy and

Design
A strategy is a plan for interacting with the
competitive environment
Managers must select specific strategy
design
Models exist to aid in formulating strategy:
Porters Five Forces
Miles and Snows Strategy Typology

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FIVE FORCES of
Competitive Power

Supplier Power:Prices UP? This is driven by the number of suppliers of each key
input, the uniqueness of their product or service, their strength and control over you,
the cost of switching from one to another, and so on. The fewer the supplier choices
you have, and the more you need suppliers' help, the more powerful your suppliers
are.
Buyer Power:Prices Down? Again, this is driven by the number of buyers, the
importance of each individual buyer to your business, the cost to them of switching
from your products and services to those of someone else, and so on. If you deal with
few, powerful buyers, then they are often able to dictate terms to you.
Competitive Rivalry:Number and capability of your competitors. Many or Few differentiation.
Threat of Substitution:This is affected by the ability of your customers to find a
different way of doing what you do Uniqueness? If substitution is easy and
substitution is viable, then this weakens your power.
Threat of New Entry:Power is also affected by the ability of people to enter your
market. Cost and Time? Protection?. If you have strong and durable barriers to entry,
then you can preserve a favorable position and take fair advantage of it.
Reprinted by permission ofHarvard Business Review. From "How Competitive Forces Shape Strategy " by Michael E. Porter, March 1979.
Copyright 1979 by the Harvard Business School Publishing Corporation; all rights reserved.

Porters Competitive
Strategies
Differentiation strategy to distinguish
products or services from others in the
industry
Low-Cost Leadership increase market
share by keeping costs low compared to
competitors
Organizations may choose to focus broad or narrow in
reaching multiple markets.
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Porters Competitive
Strategies

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Miles and Snows

Strategy Typology
Managers should seek to formulate strategy that matches the demands of
the external environment
Prospector

Learning orientation; flexible, fluid, decentralized structure

Values creativity, risk-taking, and innovation

Defender

Efficiency orientation; centralized authority and tight cost

control
Emphasis on production efficiency, low overhead

Analyzer

Balances efficiency and learning; tight cost control with

flexibility and adaptability
Emphasis on creativity, research, risk-taking for innovation

Reactor

No clear organizational approach; design characteristics may

shift abruptly depending on current needs

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How Strategy Affects

Organization Design
Strategy impacts internal
organization characteristics

Managers must design

the organization to
support the firms
competitive strategy
How does your organization organize to support its
competitive strategy?
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Organiza
tion
Design
Outcome
s of
Strategy

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Contingency Factors
Affecting Organization
Design

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Assessing Organizational
Effectiveness
Effectiveness takes into consideration a range of
variables at both the organizational and departmental
levels.
Efficiency relates to the working of the organization and
amount of resources used to produce output.
Measuring Effectiveness:
The Goal Approach
The Resource-Based Approach
The Internal Process Approach
The Strategic Constituents Approach

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Indicators of Organizational
Effectiveness

Pick the
three most
important
in your
judgment.
WHY?

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Approaches to Measuring
Organizational Effectiveness

How does your

organization
measure?
Your department?

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An Integrated
Effectiveness Model
Competing values model tries
to balance concern with various
parts of the organization
The human relations
emphasis incorporates the
values of an internal focus and
flexible structure
EVALUATION goal versus competition -GE
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Four Approaches to
Effectiveness Values

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Effectiveness Values for

Two Organizations

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Design Essentials
Organization exist for a purpose
Strategic intent includes competitive
advantage and core competence
Strategies may include many techniques
There are models to aid in the development
of strategy
Organizational effectiveness must be
assessed
No approach is suitable for every organization
what do you need to take into account?
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