Chapter 1: Organizations & Organizational Effectiveness
What Is an Organization?
An organization is a tool people use to coordinate their actions to obtain something they desire or
value—that is, to achieve their goals. A response to satisfy some human need.
Entrepreneurship is the term used to describe the process by which people recognize opportunities
to satisfy needs and then gather and use resources to meet those needs.
How Does an Organization Create Value?
The organizational environment is 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.
Why Do Organizations Exist?
Figure 1.3 summarizes five reasons for the existence of organizations.
1. Increase Specialization and the Division of Labor: The collective nature of organizations
allows individuals to focus on a narrow area of expertise, which allows them to become more
skilled or specialized at what they do compared to people who work alone.
2. Use Large-Scale technology: Organizations are able to take advantage of the economies of
scale and scope that result from the use of modern automated and computerized
technology.
a. Economies of scale are cost savings that result when goods and services are
produced in large volume on automated production lines.
b. Economies of scope are cost savings that result when an organization is able to use
underutilized resources more effectively because they can be shared across several
different products or tasks.
, 3. Manage The Organizational environment: Managing complex environments is a task beyond
the abilities of most individuals, but an organization has the resources to develop specialists
to anticipate or attempt to influence the many pressures from the environment. This
specialization allows the organization to create more value for the organization, its members,
and its customers.
4. Economize on Transaction Costs: The costs associated with negotiating, monitoring, and
governing exchanges between people to solve these kinds of transaction difficulties are
called transaction costs (e.g. Division of Labor).
5. Excert Power and Control: Employment, rewards, promotion, etc. can be used to exert
power and control over individuals in order to increase production efficiency and to conform
to tasks.
Organizational Theory, Design and Change
Organizational theory is the study of how organizations function and how they affect and are
affected by the environment in which they operate.
Organizational structure is the formal system of task and authority relationships that control
how people coordinate their actions and use resources to achieve organizational goals.
Organizational culture is 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 is the process by which managers select and manage aspects of
structure and culture so an organization can control the activities necessary to achieve its
goals.
Organizational change is the process by which organizations move from their present state
to some desired future state to increase their effectiveness (= adding more value).
Dealing with Contingencies
A contingency is an event that might occur and must be planned for, such as a changing environment
pressure like rising gas prices or the emergence of a new competitor like Amazon.com that decides to
use new technology in an innovative way.
,How Do Managers Measure Organizational Effectiveness?
The external resource approach (control) allows managers to evaluate how effectively an
organization manages and controls its external environment.
The internal systems (innovation) approach allows managers to evaluate how effectively an
organization functions and operates.
The technical approach (efficiency) allows managers to evaluate how efficiently an
organization can convert some fixed amount of organizational skills and resources into
finished goods and services.
Measuring Effectiveness: Organizational Goals
Official goals are guiding principles that the organization formally states in its annual report and in
other public documents. Usually these goals lay out the mission of the organization: They explain
why the organization exists and what it should be doing.
Operative goals are specific long- and short-term goals that guide managers and employees as they
perform the work of the organization (table 1.1).
, Chapter 3: Organizing in a Changing Global Environment
What Is the Organizational Environment?
The environment is the set of pressures and forces surrounding an organization that have
the potential to affect the way it operates and its ability to acquire scarce resources -
including raw materials and skilled people.
The term organizational domain refers to the particular range of goods and services that the
organization produces, and the customers and other stakeholders it serves.
The specific environment consists of forces from outside stakeholder groups that directly
affect an organization’s ability to secure resources (e.g. customers, distributors, unions,
competitors, suppliers, government, …).
An organization must engage in transactions with each of the forces in its specific environment if it is
to obtain the resources it requires to survive and to protect and enhance its domain.
The general environment consists of forces that shape the specific environment and affect
the ability of all organizations in a particular environment to obtain resources
Sources of Uncertainty in the Organizational Environment
All forces - general and specific environment - are a source of uncertainty.
Environmental complexity is a function of the strength, number, and interconnectedness of
the specific and general forces that an organization has to manage.
Environmental dynamism is a function of how much and how quickly forces in the specific
and general environments change over time.
Environmental richness is a function of the amount of resources available to support an
organization’s domain (depends on location and level of competition over resources).
What Is an Organization?
An organization is a tool people use to coordinate their actions to obtain something they desire or
value—that is, to achieve their goals. A response to satisfy some human need.
Entrepreneurship is the term used to describe the process by which people recognize opportunities
to satisfy needs and then gather and use resources to meet those needs.
How Does an Organization Create Value?
The organizational environment is 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.
Why Do Organizations Exist?
Figure 1.3 summarizes five reasons for the existence of organizations.
1. Increase Specialization and the Division of Labor: The collective nature of organizations
allows individuals to focus on a narrow area of expertise, which allows them to become more
skilled or specialized at what they do compared to people who work alone.
2. Use Large-Scale technology: Organizations are able to take advantage of the economies of
scale and scope that result from the use of modern automated and computerized
technology.
a. Economies of scale are cost savings that result when goods and services are
produced in large volume on automated production lines.
b. Economies of scope are cost savings that result when an organization is able to use
underutilized resources more effectively because they can be shared across several
different products or tasks.
, 3. Manage The Organizational environment: Managing complex environments is a task beyond
the abilities of most individuals, but an organization has the resources to develop specialists
to anticipate or attempt to influence the many pressures from the environment. This
specialization allows the organization to create more value for the organization, its members,
and its customers.
4. Economize on Transaction Costs: The costs associated with negotiating, monitoring, and
governing exchanges between people to solve these kinds of transaction difficulties are
called transaction costs (e.g. Division of Labor).
5. Excert Power and Control: Employment, rewards, promotion, etc. can be used to exert
power and control over individuals in order to increase production efficiency and to conform
to tasks.
Organizational Theory, Design and Change
Organizational theory is the study of how organizations function and how they affect and are
affected by the environment in which they operate.
Organizational structure is the formal system of task and authority relationships that control
how people coordinate their actions and use resources to achieve organizational goals.
Organizational culture is 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 is the process by which managers select and manage aspects of
structure and culture so an organization can control the activities necessary to achieve its
goals.
Organizational change is the process by which organizations move from their present state
to some desired future state to increase their effectiveness (= adding more value).
Dealing with Contingencies
A contingency is an event that might occur and must be planned for, such as a changing environment
pressure like rising gas prices or the emergence of a new competitor like Amazon.com that decides to
use new technology in an innovative way.
,How Do Managers Measure Organizational Effectiveness?
The external resource approach (control) allows managers to evaluate how effectively an
organization manages and controls its external environment.
The internal systems (innovation) approach allows managers to evaluate how effectively an
organization functions and operates.
The technical approach (efficiency) allows managers to evaluate how efficiently an
organization can convert some fixed amount of organizational skills and resources into
finished goods and services.
Measuring Effectiveness: Organizational Goals
Official goals are guiding principles that the organization formally states in its annual report and in
other public documents. Usually these goals lay out the mission of the organization: They explain
why the organization exists and what it should be doing.
Operative goals are specific long- and short-term goals that guide managers and employees as they
perform the work of the organization (table 1.1).
, Chapter 3: Organizing in a Changing Global Environment
What Is the Organizational Environment?
The environment is the set of pressures and forces surrounding an organization that have
the potential to affect the way it operates and its ability to acquire scarce resources -
including raw materials and skilled people.
The term organizational domain refers to the particular range of goods and services that the
organization produces, and the customers and other stakeholders it serves.
The specific environment consists of forces from outside stakeholder groups that directly
affect an organization’s ability to secure resources (e.g. customers, distributors, unions,
competitors, suppliers, government, …).
An organization must engage in transactions with each of the forces in its specific environment if it is
to obtain the resources it requires to survive and to protect and enhance its domain.
The general environment consists of forces that shape the specific environment and affect
the ability of all organizations in a particular environment to obtain resources
Sources of Uncertainty in the Organizational Environment
All forces - general and specific environment - are a source of uncertainty.
Environmental complexity is a function of the strength, number, and interconnectedness of
the specific and general forces that an organization has to manage.
Environmental dynamism is a function of how much and how quickly forces in the specific
and general environments change over time.
Environmental richness is a function of the amount of resources available to support an
organization’s domain (depends on location and level of competition over resources).
