B344Unit 1 Definition of organizations A tool used by people to coordinate their actions to obtain something they desire or value.Organizations are (1) social entities that (2) are goal-directed, (3) are designed as deliberately structured and coordinated activity systems, and (4) are linked to the external environment. (5) with identifiable boundaries Elements of an organization 1.Tangible elements Tasks : the activities required to attain objectives People : members assigned to do tasks Materials : resources required for tasks Authority structure : command and reporting relationships among members, both as individuals and as groups 2.Intangible elements Common goals Motivation at work Effective communication Harmonious relationships Effective co-ordination Organization configurations (Mintzberg, 2012) Operating Core Middle Line Strategic Apex Techno Structure Support Staff Ideology Importance of organizations 1.To increase efficiency through specialization and the division of labour 2.To take advantage of economies of scale/scope, especially through the use of modern technology 3.To facilitate innovation, particularly through the modern technology 4.To manage the external environment 5.To economize on transaction cost 6.To exert power and control while at the same time adapting to the challenges of changing industrial relationships. Formal vs Informal organizations 1.Formal : components are publicly observable, rational, and oriented to structural considerations. 2.Informal: components are hidden, affective, and oriented to social/psychological process and behavior considerations. The structural dimensions Formalization Rules and regulations Centralization Decisions made at the top management Specialization jobs are defined narrowly and depend on unique expertise Standardization activities are described and performed routinely Complexity Types of activities in an organization Hierarchy of Authority vertical differentiation in an organization Contingency Factors Each factor could exert impact on structural dimensions: Size Goals and Strategy Culture Technology Environment The challenge is to adjust or align the structural dimensions to be compatible with the contingency factors. The mechanistic-organic typology 1.Mechanistic design 2.Organic design We can view organizations as capable of being categorized along a continuum ranging from a mechanistic design to an organic design. Study of organization theory To equip us with the understanding necessary to observe and analyze organizations so as to explain, predict and control organizational phenomena precisely and effectively. Evolution of organization theory 1.Classical Approach 2.Behavioural Approach 3.Decision-making School 4.Systems Approach 5.Contingency Approach The Classical Approach of Organization Theory Three main school of thoughts 1.Max Weber and bureaucracy A well-defined hierarchy of authority A clear division of labor A system of rules covering the rights and duties of the position incumbents A system of procedures for dealing with the work situation Impersonality of interpersonal relationships, and Selection of employment and promotion based on technical competence. 2.Frederick Taylor and scientific management The scientific study of work to determine the one best way for performing each job. 3.Henri Fayol and administrative management 14 principles of management Division of work Authority DisciplineUnity of command Unity of direction Subordination of individual interests to the general interests RemunerationCentralization Scalar chain Order EquityStability of tenure of personnel InitiativeEspirit de corps The Behavioral Approach of Organizational Theory Three main school of thoughts 1.Elton Mayo and Hawthorne Studies Workers work behavior does not solely depend on financial incentives. An individuals work behaviour is affected by his attitude. Group morale and productivity are closely related to supervision Group spirit and cohesiveness are important Informal groups exist along with formal groups and strongly influence work behaviour 2.W L Warner and the Chicago School The study of organizational behavior should take into account the influence of societal factors. 3.Eliot Chapple/Chris Argyis and the Interactionist approach It should take into account of human interaction and the ways in which meanings emerge through interaction. Unit 2 The role of strategic purpose in organizational design Mission It is the broad direction and the ultimate desired outcomes of an organization. It tried to provide an answer to: What does the organization do? How does it do what it does? For whom does the organization do it? Vision It looks into the future and is considered to be a mental image of a possible and desirable future state of the organization. A good mission statement states what an organization does right now and why, and a good vision statement articulates and inspires the future of the organization. Goals Desired outcomes or targets. They guide management decisions and form the criteria against which work results are measured. oStrategic goals: wide coverage, long-term and low specificity oOperational goals: narrow coverage, short-term and high specificity The Decision-Making Approach of Organization Theory Two main school of thoughts 1.Chester Barnard and the Communication Organization is a structure of decision-makers and communication should be placed at the heart of the organization. Characteristics of effective and efficient communication system: A definite formal channel of communication to every member of the organization Line of communication is direct and short Complete formal line of communication should be usedManagers and organizations should be able to process information 2.Herbert Simon and the Decision-network As a result of advancement in technology, decision making in organizations would become automatic, ie the decision-making system would be capable of handling a huge volume of complex problems in a short time. Decisions that previously handled by individual units could be centralized. Some basic concepts of the decision-making approach Elements of decision-making Value premises related to the values of the decision-makers (subjective) Intrinsic value :the inherent attractiveness of something Instrumental value : the means to achieve something Factual premises factual conditions of the decision situations (objective) Effectiveness of decisions Efficiency ratio between input and output, ie output/input Effectiveness difference between the expected and achieved state. The Contingency Approach of Organizational Theory(further to be discussed in Unit 4 on external environment) Two main school of thoughts 1.Environment and Structure by Tom Burns, G M Stalker-To be effective, organizations operating in an unstable and changing environment should adopt an organic structure and organizations operating in a stable environment should adopt a mechanistic structure. 2.Differentiation and Integration by Paul Lawrence, Jay Lorsch -Differentiation: task segmentation as well as diversify in the attitudes and behaviour of managers of different departments. The higher the degree of differentiation is, the more complex the organization. -Integration: the efforts required to co-ordinate the departments for the attainment of goals. Greater differentiation means that more integration is required. Organizational designs and strategic choices Organizational design is about matching the form of organization to the strategic purposes and goals that the organization seeks to achieve. A fit (proper match) between the strategy and structure could lead to superior organizational performance. 1.Michael Porters generic strategies-Cost leadership : low-cost producer in its industry -Differentiation : uniqueness -Focus : on a particular target segment only -The danger of being stuck in the middle 2.Miles and Snow strategy typology-Prospector : profiting from new market opportunities with innovative products. -Defender : profiting from existing products through enhancing of efficiency and preventing competitors from entering the markets. -Analyser : profiting from efficient provision of existing products on one hand and developing innovative products on the other. -Reactor : without clear strategic focus. Emerging concepts of strategy Resource-based view of firms Focusing on identifying and examining of internal resources and capabilities as source of competitive advantage Resources : financial, material, human and information Capabilities : a firms capability to deploy resources The strategies of pursuing speed and quality To increase responsiveness and speed, firms need to establish a better understanding of the customers and control on supplies. Assessing organizational efficiency and effectiveness The contingency effectiveness approach 1.Goal approach(Goal-attainment approach) It is concerned with whether the organization manages to achieve the desired level of output. 2.System-resource approach It focuses on acquisition and management of resources. 3.Internal process approach It is concerned the health and well-being of the organization. The integrated effectiveness approach In order to achieve a desirable level of effectiveness, managers and their organizations have to simultaneously work on many different activities and strive to achieve a set of outcomes.Balanced scorecard approach-Financial perspective : return on capital, sales growth, cost reduction -Customer perspective : level of customer satisfaction, customer retention rate -Internal business perspective : manufacturing cost, defective rate of products -Learning and growth perspective : number of new products introduced, employees retention rate Unit 3Defining Organizational Structure The formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve organizational goals. Information-processing perspective on organizational design Organizational design can be regarded as decisions in determining-Vertical information linkages : downward and upward information flows between top and bottom of an organization. -Horizontal information linkages : lateral information flows in an organization. Organizations need information to overcome the uncertainties that they face, either by-Reducing the need of information processing -Increase the capacity in information process Dimensions of organization design Structural dimensions: describe the internal characteristics of the organization. e.g. formalization, specialization, hierarchy of authority, centralization, professionalism and personnel ratios. Contextual dimensions: shape the structural dimensions of the organization. e.g. size of organization, organizational technology, the environment, goals and strategy of the organization, and organizational culture. Five basic organization design challenges 1.Balancing vertical and horizontal differentiation 2.Balancing differentiation and integration 3.Balancing centralization and decentralization 4.Balancing standardization and mutual adjustments 5.Managing the relationship between formal and informal organizations Level of differentiation a)Horizontal differentiation It is the grouping of tasks into roles and the grouping of roles into units(such as departments and divisions).It allows the organization to achieve efficiency through the division of labour. However, it can lead to sub-unit orientation and employee alienation. b)Vertical differentiation It is the design of the hierarchy of authority.It allows the organization to better monitor, evaluate and reward employees. However, it can lead to communication, motivation and cost problems. c)Spatial differentiation It is the geographical distribution of the activities and personnel of organization. The more differentiation, the more complex is the organization. Differentiation versus integration The more differentiation an organization is, the more important integration is. Three types of task independence that influence the use of integrating mechanisms: a)Pooled interdependence Each unit works independently and contributes to the common good of the organization. There is little or no flow of resources between units. It can co-ordinate activities by standardizing decision rules and procedure. b)Sequential interdependence The outputs of one unit become the inputs of another unit. The latter unit has to depend on the former of its performance. It can co-ordinate activities by planning and scheduling. c)Reciprocal interdependence The outputs of one unit become the inputs of another unit and the outputs of the latter unit again become the inputs of the former unit. It can co-ordinate activities by mutual adjustments. Major integrating mechanisms include: a)Mutual adjustments requires employees to observe one anothers action and make judgements concerning how to respond in a certain situation b)Standardization of work processes c)Standardization of inputs and outputs d)Standardization of skills, knowledge and value Centralization versus decentralization of authority a)Centralization An organizational set-up whereby the authority to make important decisions is retained by managers at the top of the hierarchy. It is suitable if the decision involves a comprehensive perspective or when central effort provides significant cost savings. b)Decentralization An organization set-up whereby the authority to make important decisions about organizational resources and to initiate new projects is delegated to managers at all levels in the hierarchy. It increases the speed of decision-making and the responsiveness of the organization. It also provides subordinates with motivation and learning opportunities. Standardization versus mutual adjustment a)Standardization Conformity to specific models or examples defined by sets of rules and norms that are considered proper in a given situation. It serves to maintain control through rules and norms. b)Mutual adjustment The compromise that emerges when decision and co-ordination are evolutionary processes and people use their judgement rather than standardized rules to address a problem. It requires employees to observe one anothers actions and make judgements concerning how to respond in a certain situation. Formal versus informal organizations To be effective, organization design should take into consideration the impact of informal organization. Major organization design options 1.Functional structure: grouped under functions like HR, Finance and Marketing. Allows economies of scale within functional departments Enables in-depth knowledge and skill development Enables organization to accomplish functional goals Is best with only one or a few products oSlow response time to environmental changes oMay cause decisions to pile on top; hierarchy overload oLeads to poor horizontal coordination among departments oResults in less innovation oInvolves restricted view of organizational goals 2.Divisional structure: product, market and geographical structure. Suited to fast change in unstable environmentLeads to customer satisfaction because product responsibility and contact points are clearInvolves high coordination across functionsAllows units to adapt to differences in products, regions, customersBest in large organizations with several productsDecentralizes decision making oEliminates economies of scale in functional departmentsoLeads to poor coordination across product linesoEliminates in-depth competence and technical specializationoMakes integration and standardization across product lines difficult 3.Matrix structure: functional and divisional grouping used at the same time. Achieves coordination necessary to meet dual demands from customersFlexible sharing of human resources across productsSuited to complex decisions and frequent changes in unstable environmentProvides opportunity for both functional and product skill developmentBest in medium-sized organizations with multiple products oCauses participants to experience dual authority, which can be frustrating and confusingoMeans participants need good interpersonal skills and extensive trainingoIs time consuming; involves frequent meetings and conflict resolution sessionsoWill not work unless participants understand it and adopt collegial rather than vertical type relationshipsoRequires great effort to maintain power balance Alternative organization design options 4.Horizontal structure: organized around the workflow processes of the organization. Promotes flexibility and rapid response to changes in customer needsDirects the attention of everyone toward the production and delivery of value to the customerEach employee has a broader view of organizational goalsPromotes a focus on teamwork and collaborationImproves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be accountable for outcomes oDetermining core processes is difficult and time consumingoRequires changes in culture, job design, management philosophy, and information and reward systems oTraditional managers may balk when they have to give up power and authority oRequires significant training of employees to work effectively in a horizontal team environment oCan limit in-depth skill development Virtual network structure: virtual organization whose activities are co-ordinated by contracts and agreements. Enables even small organizations to obtain talent and resources worldwideGives a company immediate scale and reach without huge investments in factories, equipment, or distribution facilitiesEnables the organization to be highly flexible and responsive to changing needsReduces administrative overhead costs oManagers do not have hands-on control over many activities and employeesoRequires a great deal of time to manage relationships and potential conflicts with contract partnersoThere is a risk of organizational failure if a partner fails to deliver or goes out of businessoEmployee loyalty and corporate culture might be weak because employees feel they can be replaced by contract services 5.Hybrid structure: functional, divisional and horizontal structures to suit the needs. Unit 4 The Systems Approach of Organizational Theory The systems concept Inputs, transformation process, outputs and feedback Organizations as systems Inputs Resources(people, materials, equipment, finances, knowledge, information) Transformation process management (POLC) and technical activities(technology) Outputs Outcomes(goods & services, profits & losses, employee & society satisfaction) Feedback Information(outcome of activities, condition of organization) The levels of an organizations system A system is made up of subsystems. (contrast: suprasystem) Organizations as open systems An open system - interacts with the environment continuously. (Contemporary theories)A closed system a self-contained system. (Classical theories) The Systems Approach of Organizational Theory Three main schools of thoughts 1.Open systems theory by Daniel Katz, Robert Kahn Characteristics: 1.Input of energy 2.Transformation process 3.Outputs 4.Cyclical character the systems outputs provide a means to acquire new inputs. 5.Negative entropy the ability of a system to repair itself, maintain its life and even grow bigger. 6.Negative feedback the ability to acquire information on outputs that are useless or unexpected so that it can take corrective action to remedy the situation. 7.Homeostasis function the ability to develop mechanism to allow it to maintain stability. 8.Differentiation it will become more and more complex over time. 9.Equifinality it will reach the same final stage from differing initial stages or by differing routes. 2.Organizational subsystems by Kast and Rosenzweig -Organizations are artificial open systems made up of subsystems to attain certain goals of the individual and the organization. -Organizations interact constantly with the environment and adapt to the changing demands of the environment. -The subsytems in an organization can be classified in terms of function and level. e.g. By function (production, HR, Admin, Accounting Subsystems); By level (Operation, Tactical, Strategic Subsystem). Together they form a whole system. 3.Environmental perspectives by Katz and Kahn -Five essential functions performed by organizations subsystems for organizational survival: a)Production responsible for task accomplishment b)Maintenance responsible for maintaining stability and predictability c)Boundary-spanning responsible for handling inputs and outputs d)Adaptation responsible for coping with organizational change e)Management responsible for leading and co-ordinating the other subsystems, resolving organizational conflicts and managing external relationships. The themes of the Systems Approach 1.An organization is an interactive system 2.Organizations can be classified by the conditions of their environment 3.Organizations adapt to environmental changes 4.To survive, organizations must develop feedback mechanism The organizations external environment 1.Task environment (specific or particular environment) -It includes forces or aspects of the environment that influence the operation of the organization directly. -Four sectors :a)Industry (Competitors) b)Raw materials (Suppliers) c)Market (Customers) d)Human resources (Employees) 2.General environment -It includes forces or aspects of the environment that may affect the operation of the organization indirectly. -Five sectors: a)Government (Political) b)Demographic (Population) c)Socio-cultural d)Economic e)Technology 3.International environment -Forces from foreign markets that may affect then operation of the organization globally. - -Environmental Uncertainty -The rate of changes in the external environment. -The increase in the uncertainty of a task would require management to access to a greater amount of information in order to overcome the uncertainty. The higher the uncertainty, the greater the need for effective managerial information processing for making the right decision. Contingency Approach by Paul Lawrence, Jay Lorsch (related to Unit 2) -The degree of differentiation and integration among departments in organizations was greater in organizations that were facing an environment with a high level of uncertainty. -When Uncertainty meets Complexity (the number and dissimilarity of elements in the external environment), there are four scenarios: a)Calm environment low uncertainty / low complexity b)Locally stormy high uncertainty / low complexity c)Varied environment low uncertainty / high complexity d)Turbulent environment high uncertainty / high complexity Inter-organizational relationships -The relatively enduring resource transactions, flows and linkages that occur among two or more organizations. -Reasons for building inter-organizational relationship: 1.Sharing risks when entering new and unfamiliar market 2.Pursuing expensive new programmes to promote innovation and reduce costs 3.Enhancing organizational profile in a specific industry or technology Three approaches of inter-organizational relationships 1.Resource dependence perspective -Organizations strive to have access to a steady flow of resources by either working independently or by developing relationships with other organizations. -Autonomous strategies: a)Buffering stockpiling resources when they are plentiful/cheap b)Smoothing using schedules and incentive practices to level down flows c)Forecasting predicting changes by adjusting flow of resources d)Rationing limiting provision of products and services complexityVariedTurbulent CalmLocally uncertainty -Inter-organizational strategies: a)BargainingEstablishing short term formal exchange agreements with another organization b)Co-optation Bringing representatives of another organization which provides vital resources into the decision-making structure of a focal organization. e.g. interlocking directorates c)CoalitionEstablishing relatively long term formal/informal agreementsMinority ownership formal linkage agreement when two organizations buy in a small portion of ownership of each other Jointventuresformalstrategicarrangementwhentwoormoreorganizations agree to establish and share ownership of a new business d)Mergers and acquisitions Taking over the ownership of a supplier, customer or competitor to secure the flow of vital resources oVerticalintegration(M&Aatdifferentlevelsofasupplychain: forward/backward) oHorizontal integration (M&A at the same level of a supply chain, including competitors) 2.Collaborative network perspective -Organizations use network to share resources or knowledge to take advantage of the development of technology. -Advantages of tightly connected relationships: a)Trust b)Transfer of information c)Joint problem solving -Network embeddedness model: a)Network Closure Model Members are mutually connected through strong ties b)Structural Holes Model Members are connected by a focal member through weak ties 3.Ecology perspective -Organizations in an overall population are under constant change and how inter-organizational relationships could be developed to benefit the ecosystem as a whole. -Variation, Selection and Retention Model (VSR): a)Variation Emergence of new forms of organizations in the environment b)Selection Whether a new form of organization can sustain and keep itself alive in the environment (fit to survive) c)Retention A few particularly successful forms of organizations retain, duplicate and grow large in the environment -Three common types of symbiotic relationship in a business ecosystem: a)Mutualism A relationship between two organization gives rise to mutual benefits. b)Commensalim one organism enjoys certain benefits while the other organism is neither benefited nor harmed in any way. c)Parasitism A relationship between two organizations brings benefits to one organism (ie the parasite), but harm or damage to the other organism (ie the host) Unit 5 Understanding the international environment International organization is an organization that engages in cross-border business activities with individuals, private firms and/or public organizations. Multinational organization is an organization which has substantial direct investment and maintains operations in foreign countries. Motivations for going international 1.Economies of scale Cost saving through production of large volume. 2.Economies of scope Cost saving through producing a wider range of products/services or by serving more regions/countries. 3.Access to low-cost production factors It can be access to low cost inputs like labour, capital and energy. 4.Profiting from promising markets It allows organization in developed countries where their domestic markets have already been saturated. It also minimizes risks throughout conducting businesses in multiple foreign markets with different business cycles. 5.Access to advanced technologies and know-how Knowledge and expertise are often clustered in certain geographical locations. Paths of international expansion Internationalization is the process of an organization entering foreign markets. A total of 4 stages are: 1.Export / Import operations Focus in domestic operations It can add an import and export department to the existing organization structure. 2.Strategic alliances/ Joint ventures Forming formal relationship with foreign organizations in pursuing for overseas opportunities. It may involve establishment of partly owned business entity as of joint venture. 3.Wholly owned foreign subsidiary Direct investment in foreign countries to maximize benefits and exposure gained in foreign locations. It could involve existence of foreign operations in multiple locations. 4.Global Global orientation and see the whole world as the marketplace. The structure is highly complex as strong linkages are found among organizational units to facilitate exchange and generating of knowledge. Relationships between stages of international and degree of control 1.Organization control over the foreign operations (minimum to maximum) 2.The resources to be committed to overseas operations (limited to substantial) 3.Flexibility in arrangement, including exit and retrenchment (high to low) 4.Exposure to risks in the international environment (low to high) Designing organizational structures to fit international strategies Two strategic orientations 3.Global integration Highly integrated production process to source, produce and distribute standardized products throughout the world. 4.Local responsiveness Products are tailored to specific needs of consumers in different parts of the world Four international strategies and organizational structures 1.International strategy and international structure When both global integration and local responsiveness is low. It involves a centralized unit (headquarters) to oversee the development of new products/ services, i.e. one-way view from the headquarters to the rest of the world.The management believes that if its products are successful in the domestic market, then it would be successful in foreign markets. 2.Global strategy and global structure When the global integration is high but low in local responsiveness. Similar to international structure, but the management sees the concept of home market as irrelevant. They treat the market from a global perspective and strive to serve all customers in the global market. 3.Multi-domestic strategy and structure When the global integration is low but high in local responsiveness. Subsidiaries are located in different countries/regions with each focusing on the needs of its local market.Decentralization allows these subsidiaries to develop their own plans and have their own culture. 4.Transnational strategy and structure When both global integration and local responsiveness are high. The organizational units are highly integrated and interdependent in a worldwide network, but each of them is specialized to achieve efficiency. To achieve dual goal of global scale efficiency and local responsiveness, it would need a more advanced and complex organizational structure. Challenges of designing structures of international organizations Three kinds of control mechanisms 1.Output control mechanism Based on performance whether its results can meet the standard, i.e. profit centres. 2.Machine control mechanism Based on fully document rules and procedures to specify how tasks should be done, i.e. high degree of centralization and formalization. 3.Cultural control mechanism Based on the cultivation and maintenance of organizational norms and values shared by employees in different parts of the world, i.e. high level of decentralization and low level of formalization. Two co-ordination options 1.Direct Contacts Through face-to-face interactions between superiors and subordinates, between headquarters and subsidiaries, and between members from different subsidiaries. 2.Teams Through the use of virtual teams to coordinate the expertise and knowledge of widely dispersed individuals. Learning and innovation Innovations are about problem solving, searching for new matches between needs and solutions ultimately aiming to create new value to the customers. Four approaches for international businesses: 1.Centre for global learning and innovation- done in home country 2.Local for local learning and innovation - done in local subsidiaries 3.Locally leveraged learning and innovation - knowledge shared amongst subsidiaries worldwide 4.Globally linked learning and innovation subsidiaries are interconnected by headquarters in sharing knowledge and pooled together to create innovation National culture and variations in organizational structure Five cultural dimensions by Hofstede 1.Individualism vs collectivism How people prefer to work as individuals or as a group (i.e. I or We) 2.Power distance How people handle the unequal distribution of power with different levels of tolerance. 3.Uncertainty avoidance How people feel comfortable with risks and uncertainties. 4.Masculinity vs femininity How people prefer quantity of life (achievement, heroism, assertiveness and material rewards) or quality of life (cooperation, modesty and caring for the weak). 5.Long-term vs short-term orientation How people defer instant gratification for future enjoyment and success.