LUNAR INTERNATIONAL COLLEGE

MANAGEMENT THEORIES AND PRACTICES

Course Instructor: Amare Abawa, PhD

amareab32@[Link]

FEB 2021
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 Course objectives
 Define management/organization theory
 Equip students with sound understanding of the nature and practice
of management
 Discuss the idea of theories of organizations
 Explain organization environment
 Understand Framework for Analyzing Organization Theory

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 Chapter one
Introduction to the Field of Organization Theory

After completing this chapter, you will be able to;

• Define organization theory
• Compare organization theory and organizational
behavior
• Explain the values in studying organization theory
• Describe the systems perspective
• Describe the life-cycle perspective

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What is anOrganization?

• According to Robbins, 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.
• consciously coordinated imply management.
• Social entity means that the unit is composed of people or
groups of people who interact with each other.
• The interaction patterns that people follow in an
organization do not just emerge; rather, they are
premeditated.

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• Therefore, because organizations are social entities, the
interaction patterns of their members must be balanced and
harmonized to minimize redundancy yet ensure that critical tasks
are being completed.
• An organization has a relatively identifiable boundary. This
boundary can change over time, and it may not always be
perfectly clear, but a definable boundary must exist in order to
distinguish members from nonmembers.
• Finally, organizations exist to achieve objectives.
• These goals usually are either unattainable by individuals
working alone
• If attainable individually, they are achieved more efficiently
through group effort.
• While it is not necessary for all members to endorse the
organization’s goals fully, our definition implies general
agreement with the mission of the organization
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 Features of an Organization

1. It has a relatively identifiable boundary

2. People in the organization have some

continuing bond.
3. Organization has a goal to attain.

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What is OrganizationStructure?

• It defines how task are to be allocated, who

reports to whom and the formal coordination
mechanisms and interaction patterns that will be
followed
• Organization structure has three components:
1. Complexity
2. Formalization
3. Centralization

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Components of OrganizationStructure
• Complexity: It considers the extent of differentiation
within the organization.
 This includes the degree of specialization or division of labor, the
number of levels in the organization’s hierarchy, and the extent to
which the organization’s units are dispersed geographically.

• Formalization: The degree to which an organization relies on

rules and procedures to direct the behavior of the
employees.
• Centralization: It considers where the locus of decision -
making authority lies.

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 Cent….
• In some organizations, decision making is highly
centralized. Problems flow upward, and the senior
executives choose the appropriate action. In other
cases, decision making is decentralized. Authority is
dispersed downward in the hierarchy.
• It is important to recognize that, as with complexity and
formalization, an organization is not either centralized or
decentralized.
• The placement of the organization on this continuum,
however, is one of the major factors in determining
what type of structure exists.

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 What Is Organization Design?

• Emphasizes the management side of organization

theory
• Organization design is concerned with constructing
and changing an organization's structure to
achieve the organization's goals.
• It helps to have a smooth flow of the system
without any ambiguity in functions
• It is like the blue print in the case of building a
house

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Atheory
• Is a coherent group of assumptions put forth to explain
the relationship between two or more observable facts
and to provide a sound basis for predicting future events.
Why?
1. Guide management decision.
2. Shape our view of organization.
3. Make us aware of the business environment.
4. A source of new idea.
E.g. The pecking order theory (by Stewart Myers and Nicolas Majluf, in 1984) states
that managers display the following preference of sources to fund investment
opportunities: first, through the company’s retained earnings, followed by debt, and
choosing equity financing as a last resort.
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why theory matter?
Any theory tries to:
• Describe what has happened.
• Explain why it has happened.
• Predict ifand when it will happen again.
• If we can describe, explain and predict then
practical control over what has happened is
possible
• This is one reason why some forms of
Organization theory have an appeal to managers
and management.

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 What Is OrganizationTheory?
• It is a discipline that studies the structure and
design of organizations.

• It describes how organizations are actually

structured and offers suggestions on how they
can be constructed to improve their
effectiveness.

• It studies the organization at a macro level.

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Contrasting Organization Theory and Organization
Behavior
• Organizational Behavior takes a micro view
– emphasizing individuals and small
groups
OB focuses on the behavior in organizations,
employees performance,
and attitude
• Organizational Theory takes a macro perspective. Its
unit of analysis is organization itself or its primary sub
units
OT is concerned not only with the performance of
employee and attitude but overall organizations
ability to adapt & achieve its goals
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 Contrast cont…
• However, this micro-macro distinction creates some overlap. For
instance, structural factors have an impact on employee behavior.
• So students of OB should consider the structure-behavior
relationship. Similarly, some micro topics are relevant to the study
of OT. But where micro and macro issues overlap, their emphasis is
often different.
• For instance, the topic of conflict in OB tends to focus on
interpersonal and intragroup conflicts that derive from personality
differences and poor communication.
• Conflict, when studied by organization theorists, emphasizes
problems of inter unit coordination.
• While the student of OB is likely to see all conflicts as “people”
problems, the student of OT tends to see the same conflict as
resulting from flaws in the organization's design.
• OB and OT emphasize different levels of organizational analysis
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Why Study OrganizationTheory?

• The most popular reason for studying OT is that you are

interested in pursuing a career in management

• To know how organizations operate, have that knowledge

based on some scientific evidence, and then use the
knowledge for constructing and changing an
organization’s structure to achieve the organization’s
goals

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Why Study Organization Theory?Cont’d
• we have to use theories that have undergone systematic
study.
• When we use the phrase systematic study, we mean
looking at relationships, attempting to attribute causes
and effects, and basing our conclusions on scientific
evidence; that is, data gathered under controlled
conditions and measured and interpreted in a reasonably
rigorous manner.
• To replace intuition or that "gut feeling” one has as to
"why organizations are designed as they are” or "what
works best when” with scientifically-based theories

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Why Study Organization Theory?Cont’d
• In other words, you expect to practice organization design
as a manager, administrator, personnel analyst,
organizational specialist, or the like

• Even though you may have no desire to apply your OT

knowledge, you may simply seek an answer to why
organizations with which you interact (and by which you
will probably be employed) are structured the way they
are.
• It may be a requirement for a particular degree or
certificate you are seeking

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 TEN DIFFERENT WAYSOF LOOKING AT ORGANIZATIONS
 Though organizations have been conceptualized in d/t
ways, some of the frequently used descriptions are
1. Rational entities in pursuit of goals -Organizations exist to
achieve goals, and the behavior of organizational
members can be explained as the rational pursuit of those
goals.
2. Coalitions of powerful constituencies-Organizations are
made up of groups, each of which seeks to satisfy its own
self- interest. These groups use their power to influence
the distribution of resources within the organization
3. Open system-Organizations are input-output
transformation systems that depend on their environment
for survival

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 TEN DIFFERENT WAYS OF LOOKINGAT
ORGANIZATIONS ..cont’d
4. Meaning-producing systems -Organizations are
artificially created entities. Their goals and purposes
are symbolically created and maintained by
management

5. Loosely coupled system- Organizations are made up

of relatively independent units that can pursue
dissimilar or even conflicting goals.

6. Political system-Organizations are composed of

internal constituencies that seek control over the
decision process in order to enhance their position.
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TEN DIFFERENT WAYS OF LOOKINGAT
ORGANIZATIONS ..cont’d

7. Instruments of domination-Organizations place

members into job "boxes" that constrain what they can
do and individuals with whom they can interact.
Additionally, they are given a boss who has authority
over them.

8. Information processing units-Organizations interpret

their environment, coordinate activities, and facilitate
decision making by processing information horizontally
and vertically through a structural hierarchy.

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 TEN DIFFERENT WAYSOF LOOKINGAT ORGANIZATIONS
..cont’d
9. Psychic prisons- Organizations constrain members
by constructing job descriptions, departments,
divisions, and standards of acceptable and
unacceptable behaviors. When accepted by
members, they become artificial barriers that limit
choices.
10. Social contracts- Organizations are composed of
sets of agreements whereby members perform
certain behaviors in return for compensation.

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 The Systems Perspective/Contemporary Approaches
• System: a set of interrelated and interdependent parts
arranged in a manner that produces a unified whole
• When one of these parts is itself a system (i.e., that
part consists of two or more interrelated parts), we call
the smaller system a subsystem and the larger system
its suprasystem. And that larger system, of course, can
be a subsystem of a still larger system.
• Closed systems: systems that are not influenced by and
do not interact with their environment
• Open systems: systems that interact with their
environment
• The unique characteristic of the systems viewpoint
is the interrelationship of parts within the system.
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• Every system is characterized by two diverse forces:
• differentiation and
• integration
• Organizations have divisions, departments, and like units
separated out to perform specialized activities.
• At the same time, in order to maintain unity among the
differentiated parts and form a complete whole, every system
has a reciprocal process of integration.
• This integration is typically achieved through devices such as
coordinated levels of hierarchy; direct supervision; and rules,
procedures, and policies.
• Therefore, system requires differentiation to identify its
subparts and integration to ensure that the system doesn’t
break down into separate elements.
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Basic Open System

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An Industrial Organization as Open System

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 The system approach
• Organizations were seen as a system (meaning they
were viewed as a whole made up of coherent parts).
• According to this theory/Approach, all activities in
an organization are closely connected with each
other.
• Besides, organizations interact with the outside
world (the environment).
• A system (an organization) consists of a number of
subsystems (divisions) ostensibly connected with
each other.
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 The system approach …cont’d

• When the total result of all sub- systems working

together is greater than the sum of their individual
results, this is known as synergy.
• For example, a company may acquire a similar firm, allowing it to expand its product
offering and, as a result, increase its sales and revenues. This could not have been
accomplished had the two firms remained independent.

• According to the systems approach, management

should tackle organizational problems in a consistent
way. i.e., one should not only look at a single part of
the organization when a decision is being made, but
also at the effects on the total organization.

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 Characteristics of an OpenSystem
• All systems have three activities—inputs, transformation
process and outputs
• 1. Environment awareness
• 2. Feedback
3. Cyclical character- The system’s outputs furnish the means for new inputs that
allow for the repetition of the cycle
4. Negative Entropy- The term entropy refers to the propensity of a system to run
down or disintegrate. An open system is characterized by negative entropy. i.e. it can repair
itself, maintain its structure, avoid death, and even grow because it has the ability to import
more energy than it puts out unlike the closed system.
5. Steady state- Even though there is a constant flow of new inputs into the system and
a steady outflow, on balance the character of the system remains the same
6. Movement toward growth and expansion - As the system becomes more
complex and moves to counteract entropy, open systems move toward growth and expansion
• 7. Balance of maintenance and adaptive activities
• 8. Equifinality- There are many ways to reach at the target
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 Importance of the Systems Perspective

• Permits seeing the organization as a whole with

interdependent parts – a system composed of
subsystems.
• To identify and understand the environment in
which their system operates.

• However, one of the limitations of systems approach is

its abstractness- Its value lies more in its conceptual
framework than in its direct applicability to solve managers’
organizational problems
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 The Life Cycle Perspective
• A life cycle refers to a pattern of predictable change.
• By applying it to an organization, we are saying that
there are distinct stages through which
organizations proceed, that the stages follow a
consistent pattern and that the transitions from
one stage to another are predictable rather than
random occurrences.
• In studying the life cycle of organizations, the
implication for management is that the continual
introduction of new products is required if the
organization is to survive over the long run.

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 Life Cycle Stages
1. Entrepreneurial stage. The organization is in its infancy. Goals
tend to be ambiguous. Creativity is high.
2. Collectivity stage. Organizations mission is clarified.
Communication & structure within the organization remain
informal.
3. Formalization and control stage. Organization structure is stabilized
with rules and procedures being imposed. Innovation is
deemphasized, while efficiency and stability are emphasized. At this
stage, the organization exists beyond the presence of any one
individual
4. Elaboration-of-structure stage. It diversifies its products and
services in the market. Decisions are decentralized
5. Decline stage. As a result of competition its products demands
decreases. Management looks for alternatives to sustain and
development of new product. New people could assume power to
arrest the decline. Thus, decision could be centralized
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Organizational Life Cycle

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