Preface

An organization is any group of persons with a common objective.  Simply put, two or more people may band together to form an organization because they determine that working together is a more effective means for creating value than if each of them continued to work separately.  While the primary focus of the work in which the Sustainable Research Project is involved is on situations where the members have come together to pursue for-profit business activities, the term organization is broad enough to include any and all associations, institution, companies and other groups that have been formed and are being operated for a specific purpose.  This publication provides a brief introduction to the theory and study of organizations, sometimes referred to as organizational studies.  The field of organizational studies is based on pursuing a better understanding of the structured processes that emerge within organizations to guide how the members interact with one another to pursue their mutually agreed goals and objectives.  Among the key topics covered in this publication are popular definitions of the term organizations and theories regarding the purposes of organizations; how organizations create value for the members of the organization and society as a whole; descriptions of the various internal and external stakeholders of an organization, including a review of their contributions and expectations; the fundamental elements of organizational management, including structure, culture, design and environmental factors; an overview of the academic foundations for organizational studies; a description of some of the key determinants of organizational effectiveness; and an introduction to popular methods for measuring organizational effectiveness.  This publication also includes an extensive discussion of the important culture-free/culture-bound debate which has been succinctly summarized as follows: [d]o countries at approximately the same stage of industrial development, and having similar industrial structures, adopt the same approach to the organization and management of their institutions?  Or are their distinctive cultural heritages sufficiently entrenched to mean that each society fashions its own unique administrative philosophy?  In addition, the publication identifies and describes various typologies of organizational structures that have been suggested for use in making comparisons across national or culture borders.

1

Definitions and Purposes of Organizations

Definitions of Organization

Obviously one of the threshold questions in the field of organizational studies is defining exactly what is meant by the term organization.  There are a wide variety of definitions with the words and emphasis changing depending upon the particular academic school of thought. The simple neoclassical definitions of an organization include a group of persons with a common objective and a structured process in which individuals interact to pursue and achieve common objectives.  There is a subtle, yet very important, difference between these definitions, both of which include common group objectives, in that the latter formulation includes the necessary assumption that an organization must have a structured process relating to the interactions among its members beyond the members simply coming together to pursue a shared interest or purpose.  In fact, other definitions place even greater emphasis on the processes that are part of organizations by mentioning relationships, power, objectives, roles, activities, communications and other factors that come into play whenever persons work together.  For example, in Galbraith’s view organizations are (i) composed of people and groups of people, (ii) formed to pursue and achieve some shared purpose, (iii) through a planned and coordinated division of labor, (iv) integrated by information-based decision processes, and (v) based on activities and activities within the organization that exist continuously through time.​[1]

Organizations are also defined by reference to the way that interpersonal relationships between the individuals in the organization are structured.  For example, an organization has been described as a system for differentiating among its members with respect to authority, status and roles so that outputs can be predicted and controlled and ambiguity and unforeseen consequences can be minimized.  While recognizing that some aspects of organizational operations are informal, it is generally acknowledged that organizations can be distinguished from other collections of people by the fact that an organization is based on a formal and explicit commitment among its members to use a specific structure of roles and responsibilities to pursue the common goals of the members.  Finally, another useful way to look at an organization is as a system consisting of inputs, conversion or transformation processes, outputs, feedback and an external environment.

Putting all this together an organization can be thought of as a group of people that share a common goal or set of goals who intentionally come together to organize themselves so they can cooperate with each other and coordinate their activities in such a way that allows them to achieve their common goals and create something that is of value.  In most cases references to an organization include the entire group, such as all of the employees of a corporation; however, there may be various sub-groupings that are their own organizations such as a business unit within the corporation.  Organizations can be difficult to understand and explain because they are intangible and while it is generally easy to see the specific outputs, such as products and/or services, that are produced by an organization it is not apparent to outsiders how the organization controls, influences and motivates its members to create those outputs.  Organizations can range in size from two people to tens of thousands of persons and can arise whenever there is a focused desire on the part of the members to satisfy a particular need or address a condition within the broader environment in which the members are living.  For example, the need for security drives nations, states, towns and other communal units to organize armies and other types of policing forces.  Organized churches and charities are formed in order to satisfy the needs of their members for spiritual and social support.  New business organizations are created to satisfy the ever-changing tastes of consumers or to satisfy the need of society to develop products and services, such as new drugs, that can improve the overall human condition.  In fact, a popular term for the process of establishing an organization is entrepreneurship, which has been defined in a number of ways including the process by which people recognize opportunities to satisfy needs and then gather and use resources to meet those needs.​[2]

Our working definition of an organization suggests and reinforces the close relationship between human needs and the viability of organizations.  While an organization is initially formed to respond to a specific human need that exists at the time that the organization is launched subsequent events, such as the satisfaction of the need or a diminution of its importance, may cause the organization to become obsolete or if the organization is to survive it must undergo a substantial transformation in order to retain its usefulness in its larger environment.  One common example of this phenomenon occurs whenever there is a new technological breakthrough that fundamentally changes the way that consumers view their needs.  In that situation, new business organizations will be formed to create and distribute products and services based on the new technology that addresses the changes in the marketplace and, at the same time, existing business organizations that base their activities on the older and soon to be outdated technology will be faced with a crisis of survival unless they can move quickly to adapt. In fact, the formation of emerging companies is based on the decision of entrepreneurs, technical experts and investors to organize a new business to create value based on new technologies.  As this process occurs, established companies whose position in the market may be challenged by these new entrants must ponder appropriate changes in their organizational structure to ensure that they are able to incorporate the new technology into their product and services.  As we know, the answer for both new entrants and incumbents is often collaboration in some form of strategic alliance or merger.

Reasons for Existence of Organizations

Organizations often come together almost by accident or with little, if any, prior introspection and discussion as to the reasons for organizing or the goals and objectives of the organization members.  While this is understandably the preferred approach before forming a new organization, such a for-profit business, or expanding the operations and membership of an existing organization (e.g. a company adding more employees and/or entering new markets), it is important to carefully consider the following major reasons for the existence of organizations:

Organizations allow members to be more productive and efficient through division of labor and specialization.  One of the most important roles of the management of an organization is dividing up the work of the members so that they can focus on what they do best and develop specialized skills and expertise that can be turned into a competitive advantage for the entire organization. The opportunities for specialization are obviously related to the size of the organization.  For example, in smaller businesses a manager or senior engineer may be completely responsible for design of a particular product, even those aspects of the product that are not familiar to him or her; however, in larger companies it is possible to break up design issues among groups that include specialists in each of important aspects of the design.

Organizations create opportunities for cost savings and higher productivity by realizing the advantages of economies of scale.  Economies of scale are derived by businesses from being able to produce goods in large volume and this is more likely to occur in larger companies, as opposed to proprietorships, since they have the resources to implement large-volume production processes and generate sufficient demand for the product to justify the investment in those processes.

Organizations create opportunities for cost savings and higher productivity by realizing the advantages of economies of scope.  Economies of scope are cost advantages that result when businesses are able to provide a variety of products rather than specializing in the production of a single product.  If an organization has only one product it may not be fully utilizing its production resources; however, if those resources can be shared by multiple products the organization can reduce costs and justify investment in new equipment and production technologies.

Organizations are in a better position to manage and influence the external environment in which they must operate.  Organizations have the resources to assign members to monitor, and advise the organization about responding to, opportunities and changes in the external environment in which the organization conducts its activities.  In addition, larger organizations in particular are better situated than individuals to influence economic and political factors in the environment and the actions of suppliers, distributors and customers.

Organizations can reduce and control the transactional costs associated with exchanges between persons involved in the activities necessary for the organization to create its goods and services.  Organizations provide a formal structure and rules of reference for members that minimize the difficulties that might arise if they had to continuously negotiate their relationships and the specific activities that they would be expected to complete.  In addition, organizations assume responsibility for monitoring the performance of their members to ensure that work flows smoothly and that relationships between members are productive.

Organizations can increase production efficiency through their ability to control the activities of the members and exert pressure on them to conform to the standards and requirements established by the management of the organization.  For example, businesses can establish expectations regarding work schedules, behavior in the workplace, and adherence to the authority and decisions of managers and can enforce those expectations through