Organizational Theory, Culture

and Behavior
5182KI01H Spring 2017

Dr. Sarita Koendjbiharie February 20th 2017

Lecture 4

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For today

Organizational Design III

A. Organizational Structure & Organization Theory

B. Organization Environment Relation and Contingency
C. Intro Case Study II
Organization Charts 4 Dimensions of
Organizational Structure
Organization chart
a graphic representation
of formal authority and
division of labor Hierarchy Division of
relationships of authority labor

Spans of Line and

control staff
positions
 Today
Organizational context

Today and last week Lecture 2

Source: Jones, Gareth R. Organizational Theory, Design and Change NJ: Prentice-Hall, 2010.
7 Organizational Designs
Silos and Internal boundaries

Traditional designs
1) Functional organization
Closed system
2) Divisional organization
3) Matrix organization
Networks and collaboration

Contemporary designs
4) Horizontal organization
Open system
5) Hollow organization
6) Modular organization
7) Virtual organization
Design That Opens Boundaries within an
Organization Horizontal design

Group employees according to processes (e.g. new product development)

Flatten hierarchy and use teams to manage everything
Designs That Open Boundaries between
Organizations Networks

5) Hollow structure
organization identifies core competencies and
outsources noncore processes to suppliers who
can do them cheaper, better or faster
(e.g. Apple, Nike, RyanAir, Benetton)

6) Modular structure
Outsources parts of a product instead of entire
processes (e.g. Nissan, Toyota, Boeing)
Designs That Open Boundaries between
Organizations Networks
7) Virtual organization
More than just outsourcing create an organization
outside an organization
Organization identifies partners with needed talents,
negotiates agreement in which the participants
typically work in separate facilities, linked by
technology (share expertise, resources, cost savings)

Nokia used a virtual organization design in developing

and producing its phones (working with AT&T and
Verizon)
The Contingency Approach to Designing
Organizations (Burns & Stalker)

Contingency approach to organization design

organizations tend to be more effective when they
are structured to fit the demands of the situation
Belongs to an open-system perspective

Approach emphasizes situational appropriateness

rather than rigid adherence to universal principles.

No one-size-fits-all for organizational design!

Getting the Right Fit
Horizontal designs improve coordination and
communication, rapid organizational learning
Pros and cons
+ Flexibility and response to changes in customer needs
- Empowers employees but traditional managers
may resist when they have to give up power
Organizations that become hollow, modular or virtual
can generate superior returns by focusing on what
they do best need to be able trust partners
 Organization Theory
The study of how organizations function and how
they affect or are affected by the environment (e.g.
strengths and weaknesses of structures)

Why should we study it (as interns)?

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 The Evolution of Organization
Theory and Design
Historical perspectives provide insight into how
organization design and management practices have
varied over time in response to changes in society.

Source quote: Daft, Richard L. Organization theory and design. Cengage learning, 2013.
Historical Perspectives of
Organization Theory
1) Classical theories early 1900-1930s
Scientific management (Taylor)
Administrative management (Fayol)
Bureaucracy theory (Weber)
2) Neoclassical theories 1920-1940s
Human relations movement (Follet, Mayo)
3) Environmental theories 1950-1970s
Systems thinking
Contingency theory (Burns & Stalker)
Classical theories
early 1900-1930s
Merger between 1) scientific management, 2)
administrative management and 3) bureaucracy theory
There is one best way to perform tasks which can be
found through systematic scientific study
Formalized communication processes between managers
and workers must be in place
Theories aim to enhance managements ability to predict
and control the behavior of workers
Workers are considered as a means of production
(or a cog in the wheel)
Metaphor Organization as a machine
 Scientific Management
Efficiency is everything

Focuses on the management of work and workers

Frederick W. Taylor, American engineer, manager and
the father of scientific management
Objective measurements of worker efficiency
Closely matching each worker to each task
(division of labor)
Use rewards and punishments to motivate workers
Majority of workers puts minimal effort to the task,
if they are not closely supervised
Scientific Management contd
Taylor starts at the Midvale Steel Company in 1878
As foreman and chief engineer observes gross
inefficiencies through contact with steel workers

Focuses on time and motion studies to learn how to

complete a task in the least amount of time (simplifying
jobs and specialization in sequence of motions)

Publishes - The Principles of Scientific Management

Productivity gains made leaders such as Henry Ford,
Lenin and Stalin to adopt techniques
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Scientific Management contd
Principles
1. Replace rule-of-thumb work methods with methods
based on observation, data gathering and careful
measurement to determine the one best way
2. Scientifically select, train, teach, and develop workers
3. Managers should cooperate with workers to ensure that all
work is done in accordance with the principles of the
science
4. Divide the work, managers assume planning, organizing
and decision-making activities according to the principles
and workers actually perform the tasks
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Scientific Management contd
The Context
Management and labor of that period had an
antagonistic relationship
Management wanted as much output as possible
from labor at the lowest possible cost
Workers tried to protect their interests by not
working too hard
Neither side felt cooperation could lead to
maximum prosperity for both groups (trade-off)
 Administrative Management
Managing is everything

Focuses on how the organization should be managed

Henri Fayol, French engineer, CEO, administrative theorist
Difference with Taylor training management instead of
individual workers (incl. human and behavioral factors)
First comprehensive theory of administration
Success of organizations depends on administrative
capabilities of leaders instead of technical abilities
Guide managers so they can accomplish their duties
Administrative Management contd
Fayol was an engineer and manager that turned
around a French failing mining company
Recognizes management principles rather than
personal characteristics (e.g. engineer)
Others shared the belief, Fayol the first to identify
management as a continuous process of evaluation
Minimizes misunderstanding and increasing efficiency
of management within organizations
Describes the five major management functions and
fourteen principles of management
Administrative Management contd
Fayols 5 Management Functions
Fundamental roles performed by all managers:

1) Planning
2) Organizing
3) Commanding
4) Coordinating
5) Controlling

Furthermore, Fayol recognizes fourteen principles that

should guide the management of organizations.
 Administrative Management contd
Fayols 14 Principles (1916)
1. Division of Labor improves efficiency through a reduction of
waste, increased output, and simplification of job training
2. Authority and Responsibility the right to give orders and the
power to extract obedience; the obligation to carry out
assigned duties
3. Discipline respect for the rules that govern the organization
4. Unity of Command an employee should receive orders from
one superior only
5. Unity of Direction grouping of similar activities that are
directed to a single goal under one manager
Fayols 14 Principles contd (1916)
6. Subordination of Individual Interests to the General Interest
interests of individuals and groups should not take
precedence over the interests of the organization as a whole.
7. Remuneration of Personnel payment should be fair and
satisfactory for employees and the organization
8. Centralization managers retain final responsibility,
subordinates maintain enough responsibility to accomplish
their tasks

9. Scalar Chain (Line of Authority), the chain of command

from the ultimate authority to the lowest (i.e. chart)
 Fayols 14 Principles contd (1916)
10. Order people and supplies should be in the right place at the
right time
11. Equity managers should treat employees fairly and equally

12. Stability of Tenure of Personnel managerial practices that

encourage long-term commitment from employees create a
stable workforce and therefore a successful organization
13. Initiative employees should be encouraged to develop and
carry out improvement plans

14. Esprit de Corps managers should foster and maintain

teamwork, team spirit, and a sense of unity among employees
 Bureaucracy theory
Organizing is everything

Focuses on the ideal form of organizational structure

Max Weber German sociologist
First described the concept of bureaucracy
Formal set of rules to standardize the organization
The need of authority structures and power
The rational application of written rules ensures the
promotion of legitimate authority and the effective and
efficient functioning of the organization.
Schools influenced by Taylor and Weber
Bureaucracy theory contd
Weber classifies organizations according to the
legitimacy of their power and uses three basic
classifications:
Three types of Legitimate Authority (power)
Charismatic authority: based on the sacred or
outstanding characteristic of the individual
(e.g. Jesus, Ghandi)
Traditional authority: essentially a respect for customs
(i.e. nepotism, e.g. succession by family)
Rational-legal authority: based on code or set of rules
most effective basis to manage on compared to
subjective criteria
Bureaucracy theory contd
Principles
Well-defined formal hierarchy of command
Division of labor and work specialization (like Taylor)
Management by rules (standard operating procedures)
Treat employees and customers fairly
Managers should maintain an impersonal
relationships with employees
Competence not personality is the basis for job
appointment, equal opportunity based on education
and professional qualification
Bureaucracy theory contd
Today: Organizations have several characteristics of
bureaucracies. E.g. people at same level treated equally

Benefits are consistency and fairness

Nowadays, connotation, large organizations

guided by countless rules

Linked with inefficient, slow-moving organizations

Not how bureaucracy was intended!

Break
When we come backMore of :

Organizational
Structure &
Organization Theory
Organization
Environment Relations
& Case Study II
Criticisms of Classical Theories
Rigid and mechanistic
Employees have minimal power over their jobs and
working conditions, man is passive
Stifle creativity, individual growth, and motivation
Does not satisfy the human needs for belonging

Employees work with a short-term perspective and are

led to mediocrity, frequent use of shallow abilities
People are treated more as infants than competent
human beings
Maslows Need Hierarchy (1943)
Neoclassical theories
1920-1940s
Criticism of classical theory; attempt to humanize the
rigid structure. Follows workflow and productivity of
classical, but meets employee needs
Organizations exist to serve human needs
An organization was viewed as a social system of
people-to-people and people-to-work networks in
which employees have both social needs and the
desire to make meaningful contributions toward the
accomplishment of organizational goals.
Metaphor Organization as a community
 The Human Relations
Movement
People are everything

Mary Parker Follett American scholar, social reformer,

government and management consultant
Employees are complex combinations of attitudes,
beliefs and needs
Motivate job performance instead of demanding
Good leaders do not want passive followers (democracy)
Observations on Organizations and Management appeared
in her unusually titled paper: Constructive Conflict
integration over dominance and compromise
 The Human Relations
Movement contd
People are everything

Elton Mayo Australian industrial psychologist, sociologist

Founder of the Human Relations Movement
Rise of unions (1935) forced managers improve human
relations and working conditions
Managers should focus on employees emotional needs
Solidarity of work group increased satisfaction of work
Hawthorne experiments
The Human Relations
Movement contd
The Hawthorne studies
Concluded that an empathic, people-oriented form
of management increased productivity
Better form of management than prevailing
authoritarian, money-oriented management

However, weaknesses in the research design did not

allow such strong conclusions
Stands as a landmark event in American social
science research about people in organizations
McGregors Theory X & Y (1960)
Theory X Theory Y
Most people dislike work Work is a natural activity
and want to avoid it People can be self-directed if
People require close they are committed to the
direction objective
People want to avoid Rewards help commitment
responsibility and have Most employees accept and
little ambition seek responsibility
Employees have imagination,
ingenuity and creativity
 Classical vs. Neoclassical Theories

Source : Presentation Bakiev, E. Neoclassical Organization Theory. 2012.

Historical Perspectives of
Organization Theory
1) Classical theories early 1900-1930s
Scientific management (Taylor)
Administrative management (Fayol)
Bureaucracy theory (Weber)
2) Neoclassical theories 1920-1940s
Human relations movement (Follet, Mayo)
3) Environmental theories 1950-1970s
Systems thinking
Contingency theory (Burns & Stalker)
Environmental theories
1950-1970
Ludwig von Bertalanffy (1968) biologist
Systems thinking, General Systems Theory

Not a theory of management - new way of conceptualizing

and studying organizations
Offered a more comprehensive view of organizations
Systems are a set of interrelated parts that turn inputs into
outputs through processing (also feedback)
W. Edwards Deming Total Quality Management
Open versus closed systems

Metaphor Organization as an organism

Contingency Theory
Extension of Systems Theory into Management
Burns and Stalker (1968)
Organizational systems should vary based on the
level of stability in the environment
There is no one best way to structure and manage
organizations.
Structure and management contingent on nature
of environment in which organization is situated.

Two different types of management systems

Mechanistic systems for stable environments
Organic systems for unpredictable, dynamic
environments
Mechanistic versus Organic
Organizations
Mechanistic organizations
Rigid bureaucracies with strict rules, narrowly
defined tasks, and top-down communication.

Organic organizations
Flexible networks of multitalented individuals
who perform a variety of tasks

Case study II Organizational Structure

Case study assignment II
Details assignment posted on BB
I: Organizational structure (deadline May 7th) 11 wks
Let data availability drive selection of organization
(websites, reports, YouTube, news articles etc.)
Same organization is allowed

Be critical understand/analyze structure in relation to

the organizational environment
No need to do an interview here (is of course allowed)
Handle any confidential information with care
You can divide tasks but deliver a coherent report
Criteria for grading assignment published on BB
Characteristics of Mechanistic and
Organic Organizations
 Mechanistic vs. Organic

Source quote: Daft, Richard L. Organization theory and design. Cengage learning, 2013.
The external environment of
organizations
The specific (task) environment - actual organizations,
groups, and persons with whom an organization
interacts and conducts business

Includes important stakeholders such as:

Customers Suppliers Competitors Regulators

Environmental Uncertainty
Customers

Suppliers

Competitors

Regulators
Knowledge built in this lecture
Principles, pros and cons of contemporary
organizational designs (closed to open)
Overview of major organizational theories against
their historical context, approaches and criticisms
Classical, neoclassical and environmental theories
Their relevance for todays organizations
Contingency approach, mechanistic vs. organic
The external environment, environmental
uncertainty and organization environment fit
 Closing
Q&A
Read Chapter 4 of the book

Case I due within 5 weeks

Next week back to OB

Managing across Cultures
Cultural Intelligence
Internship Panel

Thank you 52
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Hawthorne studies