Organisation: an

Introduction
Ashutosh Murti
ashutosh@[Link]
 Organization Theory in Action

• Current Challenges
• Globalization
• Intense Competition
• Ethics and Social Responsibility
• Speed of Responsiveness
• The Digital Workplace
• Diversity
• Organization theory helps us explain what happened in
the past, as well as what may happen in the future, so
that we can manage organizations more effectively.
What is an Organization?

• Organization: a tool used by people to

coordinate their actions to obtain
something they desire or value

• Organizations employ people and

Organizations provide goods and services

• Organizations bring together people and

resources to produce products and
services

• Basically, organizations exist to create

value
 How Does an Organization Create Value?

• Value creation takes place at three stages: input,

conversion, and output
• Each stage is affected by the environment in which
the organization operates
• Environment – the set of forces and conditions that operate
beyond an organization’s boundaries but affect its ability to
acquire and use resources to create value
Figure 1.1 - How an Organization Creates Value

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Figure 1.2 How McDonald’s Creates Value

McDonald’s inputs: McDonald’s conversion process:

Obtained from its environment Tranforms inputs and adds value to them

Raw materials (ground beef, sandwich Machinery (grills, toasters, frying

buns, potatoes, milk-shake mix, etc.) machines, milk-shake machines)
Human resources (cooks, clean-up crew, Computers (computerized cash registers,
order takers, managers) ordering systems, inventory tracking)
Information and knowledge (training, Human skills and abilities (personnel
knowledge of fast-food industry) trained in sandwich preparation,
ordering, potato frying, overseeing
Money and capital
the whole operation)
(shareholders’ investments)

Customers

McDonald’s environment: McDonald’s outputs:

Sale of outputs to customers Released to its environment

Satisfied customers Fast and cheap food

Potential customers Satisfied customers

Suppliers of meat, potatoes, milk-shake mix Satisfied shareholders
Population from which to choose employees

Government health regulations

Competitors (KFC, Burger King,
Taco Bell)
Why do Organizations Exist?

• To increase specialization and the division of labor

• To use large-scale technology : Economies of scale,
Economies of scope
• To manage the organizational environment : economics,
Social and Political Pressures
• To economize on transaction costs
• To exert power and control

The five factors help explain why more value can be created
when people work together, coordinating their actions in an
organized setting, than when they work alone
Figure 1.3 - Why Organizations Exist

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Organizational Theory, Design, and
Change

• Organizational theory: The study of how organizations

function and how they affect and are affected by the
environment in which they operate
• Organizational structure: The formal system of task and
authority relationships that control how people coordinate
their actions and use resources to achieve organizational
goals
 Organizational Theory, Design, and
Change (cont.)

• Organizational culture: The set of shared values and norms

that controls organizational members’ interactions with each
other and with suppliers, customers, and other people outside
the organization
• Organizational design: The process by which managers select
and manage aspects of structure and culture so that an
organization can control the activities necessary to achieve its
goals
• Organizational change: The process by which organizations
redesign their structures and cultures to move from their
present state to some desired future state to increase their
effectiveness
Importance of Organizational Design and
Change

• Dealing with contingencies

• Contingency: An event that might occur and
must be planned for
• The design of an organization determines how
effectively an organization is able to respond
to various pressures in its environment and so
obtain scarce resources
• Challenges organizations must be ready to face
• Globalization
• Changing technology
 The Consequences of Poor
Organizational Design
• Decline of the organization
• Talented employees leave to take positions in
growing organizations
• Resources become harder to acquire
• The process of value creation slows down

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 How do Managers Measure
Organizational Effectiveness?
• Control - Having control over the external environment
and having the ability to attract resources and
customers
• Innovation - Developing an organization’s skills and
capabilities so the organization can discover new
products and processes
• Efficiency - Means developing modern production
facilities using new information technologies that can
produce and distribute a company’s products in a timely
and cost-effective manner

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Table 1.1 - Approaches to Measuring
Organizational Effectiveness

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

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 Measuring Effectiveness:
Organizational Goals
• Official goals: Guiding principles that the organization
formally states in its annual report and in other public
documents
• Mission: Goals that explain why the organization exists
and what it should be doing
• Operative goals: Specific long-term and short-term goals
that guide managers and employees as they perform the
work of the organization

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TABLE 1.2 [Link]’s Mission and Goals, 1998–2011
Where We Started
[Link] strives to be Earth’s most customer-centric company where people can find and
discover virtually anything they want to buy online. By giving customers more of what they
want—low prices, vast selection, and convenience—[Link] continues to grow and evolve
as a world-class e-commerce platform.

Where We Are Today

We seek to be Earth’s most customer-centric company for three primary customer sets:
consumer customers, seller customers and developer customers. . . . It is by design that
technological innovation drives the growth of [Link] to offer customers more types of
products, more conveniently, and at even lower prices.
 Summary
• Organizations are a tool people use to achieve their
goals
• Organizational theory is the study of how organizations
function and how they affect and are affected by their
environment
• Organizational effectiveness must be monitored by
managers

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 Draw up a list of effectiveness goals you would
use to measure the performance of (a) a fast-
food restaurant and (b) a school of business.

(a) Some goals used to measure effectiveness at a fast-food restaurant :

• Lower the cost of meat, fries, and drinks.
• Lower the cost of labor.
• Improve the quality of the food and the skills of employees.
• Increase profits, stock price, and market share.
• Satisfy government requirements on sanitation and fair labor laws.
• Reduce employee conflict.
• Speed up the time it takes a customer to get served.
• Find more efficient ways to produce the food.
• Increase employee motivation by offering bonuses.
• Increase the quality of the food by ensuring that it is not too greasy and
that it is hot when customers receive it.
• Minimize the number of wrong orders.
 (b) A business school’s goals can include
the following:

• Attract top-quality faculty and students.

• Maximize revenue from tuition and fees.
• Offer scholarships.
• Attract revenue from organizations and alumni.
• Gain the support of the local community.
• Reduce conflict.
• Ensure that students are prepared for jobs.
• Respond to changes in the environment by constantly updating the
curriculum.
• Encourage coordination among faculty from different departments.
 CASE FOR ANALYSIS

• How Joe Coulombe Made Trader Joe’s a Success

Story
• Realizing that his chain of convenience stores could
not compete successfully with the growing 7-11
chain, Joe Coulombe changed the name of his
stores to Trader Joe’s and altered his strategy to
begin supplying upscale specialty products such as
wine, drinks, and gourmet foods to customers. This
move worked well because he found a new niche in
the supermarket industry and excelled in customer
service by training employees to be proactive and
kept them motivated through generous rewards.
 What was Joe Coulombe’s approach to
organizational design?

Joe’s approach to organization design was guided by strong

values. He took advantage of a niche opportunity by developing
a grounded organization. He created an informal organizational
structure marked by decentralization of authority,
empowerment, and autonomy of individual employees. As a
result, employees felt responsible for the company as though it
was their own and this motivated them to work efficiently. Joe
also provided excellent rewards for good performance and
treated all employees fairly.
 2. What specific decisions did he make to
create Trader Joe’s organizational
structure and culture?
Joe realized the need for excellent customer satisfaction and
trained his employees to deliver superior service. He provided
his employees with good monetary rewards for working
efficiently. Additionally, he gave them a high degree of
autonomy and many opportunities to tailor their interactions
with customers with whom they enjoyed a good rapport. The
ambience, services, products, and culture of Joe’s stores were
designed to reflect the values upon which he based his
business.
 Go online and see how Trader Joe’s is
performing today. What new problems of
organizing has it been facing as it has grown?

• While Trader Joe’s motto of providing organic food at

competitive prices still guides their business, they are facing
numerous questions about the sources and suppliers of their
organic food products. Consumers are unhappy with the
quality of service which has deteriorated. Additionally, many
consumers have criticized the company for using too much
packaging, which not only means that the product inside the
package is less in quantity but also that the company is not as
eco-friendly as it claims to be.