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Lecture 1 organizational theory-and_design
- 1. O R GA N I ZATI ON THE O RY & DE S I G N
- 2. STRATEGY, ORGANIZATION DESIGN, AND EFFECTIVENESS PAST– PRESENT – FUTURE
- 3. STRATEGIC DIRECTION AND ORGANIZATI ON DESIGN Indeed, theprimary responsibility of top management is to determine an organization’s goals, strategy, and design, therein adapting the organization to a changing environment. The choice of goals and strategy influences how the organization should be designed. A goal represents a result or end point toward which organizational efforts are directed.
- 4. TOP MANAGEMENT ROLEIN ORGANIZATION DIRECTION, DESIGN, AND EFFECTIVENESS CEO, Top Management Team External Environment Opportunities Threats Uncertainty Resource Availability Internal Environment Strengths Weaknesses Distinctive competence Leadership Style Past Performance Strategic Management Organizatio n Design Effectiveness Outcomes Define mission, official goals Select operational goals, collaborativ e strategies Resources Efficiency Goal attainment Stakeholders Competing values Structural Form – learning vs. efficiency Information and control systems Production technology Human resource policies, incentives Organizational culture Interorganizational linkages
- 5. ORGANIZATIONAL PURPOSE Strategic Intent- means that all the organization’s energies and resources are directed toward a focused, unifying, and compelling overall goal. Mission Competitive Advantage Core Competence Operating Goals •Overall Performance •Resources •Market •Employee Development •Innovation and Change •Productivity
- 6. TYPES & PURPOSESOF GOALS Type of Goals Purpose of Goals Official Goals, mission: Legitimacy Operative goals: Employee direction and motivation Decision guidelines Standard of performance
- 7. A FRAMEWORK FOR SELECTING STRATEGY AND DESIGN •Managers have to select specific strategy and design options that can help the organization achieve its purpose and goals within its competitive environment. Porter model of competitive strategies. The Threat of New Entrants The Power of Suppliers The Power of Buyers The Threat of Substitutes Rivalry among Existing Competitors Miles and Snow’s strategy typology.
- 8. PORTER’S COMPETITIVE STRATEGIES Low -Cost Leadership Differentiation Focused Low-Cost Leadership Focused Differentiation COMPETITIVE ADVANTAGE COMPETITIVE SCOPE BROA D NARROW LOW-COST UNIQUENESS
- 9. PORTER’S COMPETITI VE STRATEGIES Differentiation. -- organizationsattempt to distinguish their products or services. Low-Cost Leadership -- tries to increase market share by keeping costs low compared to competitors. Focus -- organization concentrates on a specific regional market or buyer group. Organizations try to achieve low-cost advantage or a differentiation advantage within a narrowly defined market.
- 10. MILES AND SNOW’S STRATEGY TYPOLOGY Managers seekto formulate strategies that will be congruent with the external environment. Prospector – to innovate, take risks, seek out new opportunities, and grow Defender – Rather than taking risks and seeking out new opportunities, the defender strategy is concerned with stability or even retrenchment. Analyzer – tries to maintain a stable business while innovating on the periphery. Reactor – respond to environmental threats and opportunities in an ad hoc fashion.
- 11. HOW STRATEGIES AFFECT ORGANIZATION DESIGN Design theorganization to support the firm’s competitive strategy. With a low-cost leadership or defender strategy, select design characteristics associated with an efficiency orientation. For a differentiation or prospector strategy, on the other hand, choose characteristics that encourage learning, innovation, and adaptation. Use a balanced mixture of characteristics for an analyzer strategy.
- 12. Porter’s Competitive Strategies Strategy:Differentiation Organization Design: • Learning orientation; acts in a flexible, loosely knit way, with strong horizontal coordination • Strong capability in research • Values and builds in mechanisms for customer intimacy • Rewards employee creativity, risk taking, and innovation Strategy: Low-Cost Leadership Organization Design:. • Efficiency orientation; strong central authority; tight cost control, with frequent, detailed control reports • Standard operating procedures • Highly efficient procurement and distribution systems • Close supervision; routine tasks; limited employee empowerment Miles and Snow’s Strategy Typology Strategy: Prospector Organization Design: • Learning orientation; flexible, fluid, decentralized structure • Strong capability in research Strategy: Defender Organization Design: • Efficiency orientation; centralized authority and tight cost control • Emphasis on production efficiency low overhead • Close supervision; little employee empowerment Strategy: Analyzer Organization Design: • Balances efficiency and learning; tight cost control with flexibility and adaptability • Efficient production for stable product lines; emphasis on creativity, research, risk-taking for innovation Strategy: Reactor Organization Design: • No clear organizational approach; design characteristics may shift abruptly, depending on current needs
- 13. OTHER FACTORS AFFECTING ORGANIZATIONDESIGN Organizational Structure and Design
- 14. ASSESSING ORGANIZATION AL EFFECTIVENESS Understanding organizational goals and strategies,as well as the concept of fitting design to various contingencies, is a first step toward understanding organizational effectiveness. Organizational effectiveness is the degree to which an organization realizes its goals. Effectiveness evaluates the extent to which multiple goals are attained. Efficiency is a more limited concept that pertains to the internal workings of the organization. Organizational efficiency is the amount of resources used to produce a unit of output.
- 15. ASSESSING ORGANIZATION AL EFFECTIVENES S Overall effectiveness isdifficult to measure in organizations. Organizations are large, diverse, and fragmented. They perform many activities simultaneously, pursue multiple goals, and generate many outcomes, some intended and some unintended. Managers determine what indicators to measure in order to gauge the effectiveness of their organizations. Measuring Effectiveness: • The Goal Approach • The Resource-Based Approach • The Internal Process Approach • The Strategic Constituents Approach
- 16. TRADITIONAL EFFECTIVENES S APPROACHES The goal approachto effectiveness consists of identifying an organization’s output goals and assessing how well the organization has attained those goals. Profitability—the positive gain from business operations or investments after expenses are subtracted Market share—the proportion of the market the firm is able to capture relative to competitors Growth—the ability of the organization to increase its sales, profits, or client base over time Social responsibility—how well the organization serves the interests of society as well as itself Product quality—the ability of the organization to achieve high quality in its products or services
- 17. TRADITIONAL EFFECTIVENES S APPROACHES Resource-based Indicators looksat the input side of the transformation process. Bargaining position — the ability of the organization to obtain from its environment scarce and valued resources, including financial resources, raw materials, human resources, knowledge, and technology The abilities of the organization’s decision makers to perceive and correctly interpret the real properties of the external environment The abilities of managers to use tangible (e.g., supplies, people) and intangible (e.g., knowledge, corporate culture) resources in day-to-day organizational activities to achieve superior performance The ability of the organization to respond to changes in the environment
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- 19. TRADITIONAL EFFECTIVENES S APPROACHES Internal process approach, effectivenessis measured as internal organizational health and efficiency. A strong, adaptive corporate culture and positive work climate Operational efficiency, such as using minimal resources to achieve outcomes Undistorted horizontal and vertical communication Growth and development of employees
- 20. THE BALANCED SCORECARD APPROACH TO EFFECTIVENE SS The Strategic ConstituentsApproach - The balanced scorecard combines several indicators of effectiveness into a single framework, balancing traditional financial measures with operational measures relating to a company’s critical success factors. The balanced scorecard helps managers assess the organization from many perspectives so they have a better understanding of total effectiveness. Successful managers keep the organization focused on data in all four components rather than relying on just one, such as finances, which tells only part of the story.
- 21. BALANCE SCORECARD APPROACH ORGANIZATION B ORGANIZATION A Human Relations Model InternalProcess Model Rational Goal Model Open Systems Model STRUCTURE F O C U S FLEXIBILITY CONTROL INTERNAL EXTERNAL
- 22. DESIGN ESSENTIAL S Organizations exist fora purpose. Two other aspects related to strategic intent are competitive advantage and core competence. Competitive advantage refers to what sets the organization apart from others and provides it with a distinctive edge. A core competence is something the organization does extremely well compared to competitors. Strategies may include any number of techniques to achieve the stated goals.
- 23. DESIGN ESSENTIAL S Assessing organizationaleffectiveness reflects the complexity of organizations as a topic of study. No approach is suitable for every organization, but each offers some advantages that the others may lack. More recent approach to measuring effectiveness is the balanced scorecard approach, which takes into consideration financial performance, customer service, internal business processes, and the organization’s capacity for learning and growth
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Editor's Notes
- #12 The Hawthorne studies were conducted with the workers at the Hawthorne plant of the Western Electric Company by Elton Mayo and Fritz Roethlisberger in the 1920s.