Summary Chapter 1 - Organizations and
organizational effectiveness
Organizations are intangible. It group people and other resources to produce goods and services.
Definition: An organization is a tool used by people to coordinate their actions to obtain something
they desire or value – that is to acheive their goal.
1. Explain why organizations exist and the purposes they serve
An organization is a tool used by people to coordinate their actions to obtain something they desire
or value to achieve their goals.
Entrepreneurship is the process by which people recognize opportunities to satisfy needs and then
gather and use resources to meet those needs.
Five reasons for the existence of organizations are:
- To increase specializations and the divisions of labor
Example: An engineer working for General Motor might be more specialized in improving the design
of a car then an engineer working at a smaller company who has to do more things than his
counterpart at GM.
- To use large-scale technology
Economy of scale are when costs are saved when products are produced on a large scale.
- To manage the external environment
Includes everything from economic, social political and also how the organization obtains its
resources to create product or inputs and the marketplace into which it releases outputs.
Hard but an organization has the resource to develop specialists to influence the demands of the
environment.
- To economize of transactions costs
Transactions costs are costs paid to people who put time and effort in exchanging communication.
- To exert power and control
Organizations can exert great pressure on individual to perform tasks in specific manners.
Organizations exist to produce goods and services that people value.
2. Describe the relationship between organizational theory and organizational design and change,
and differentiate between organizational structure and culture
Organizational theory is the study of how organizations function and how they affect and are
affected by the environment in which they operate.
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 that an organization can control the activities necessary to achieve its goals. It must be a
continuously evolving managerial activity for a company to stay ahead of the competition.
Organizational change is 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.
,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.
3. Understand how managers can utilize (benutten) the principles of organizational theory to
design and change their organizations to increase organizational effectiveness
Today, managers are searching for new and better ways to coordinate and motivate their employees
to increase the value their organizations can create. Organizational design and change have
important implications for a company’s ability to deal with contingencies, achieve a competitive
advantage, effectively manage diversity (differences in race, gender, national origin) and increase its
efficiency and ability (also speed) to innovate.
An organization needs to design a structure to make optimal use of the talents of a diverse workforce
and to develop cultural values the encourage people to work together.
Organization Design plays an important role in innovation. For example: the way an organization’s
structure links people in different specializations, determines how fast the organization can
introduce new products.
Contingency – an event that might occur and must be planned for.
It is much more difficult to imitate organizational design and carefully manage change that
stem from a good organizational structure and culture.
o Why? Because structure and culture are embedded deep into the way people
interact and perform their tasks to get the job done. (Competitive advantage).
4. Identify the three principal ways in which managers assess and measure organizational
effectiveness
Three most important processes that managers use to assess and measure organizational
effectiveness:
- Control – having control over external environment and have the ability to attract resources and
customers.
- Innovation – developing an organizational skill and capability so that the organization can discover
new products and processes. Also create new organizational structure to adopt to changing external
environment.
- Efficiency – developing modern production facilities using new information technologies that can
produce and distribute a company’s product in a timely and cost-effective manner.
An organization is effective if it can take one of the three approaches:
1. Secure scarce and valued skills and resources from outside the organization
- Allow for evaluation of how managers manage and control its external environment.
Ex: Organization’s ability to influence stakeholders’ perceptions in its favor.
- To measure the effectiveness, managers use indicators such as stock price, profitability, ROI,
which compare the performance of their organizations with the performance of other
organizations or their competitors.
2. Creatively coordinate resources with employee skills to innovate products and adapt to
changing customer needs
- Measurement: length of time needed to make a decision.
- The amount of time needed to get new products to market
- Amount of time needed to coordinate to activities of different departments
, 3. Efficiently convert skills and resources into finished goods and services
- Allows managers to see how efficiently an organization can convert some fixed amount of
organizational skills and resources into finished goods and services.
- Can be measured by productivity and efficiency. In other words, ratio of outputs to imputs)
- External resource approach, evaluates the organization’s ability to secure, manage, and control
scarce and valued skills and resources
- Internal systems approach, evaluates the organization’s ability to be innovative and function quickly
and responsively
- Technical approach, evaluates the organization’s ability to convert skills and resources into goods
and services efficiently
Control, innovation and efficiency
Managers create goals that they use to assess how well the organization is performing. Two types of
goals used to evaluate organizational effectiveness are:
- Official goals are guiding principles that the organization formally states in its annual report and in
other public documents. Lay out the mission of the organization
- Operative goals, are specific long-term and short-term goals that guide managers and employees as
they perform the work of the organization.
5. Appreciate the way in which several contingency factors influence the design of organizations
Types of contingency: the organization’s environment, its strategy, technology and internal processes
organizational effectiveness
Organizations are intangible. It group people and other resources to produce goods and services.
Definition: An organization is a tool used by people to coordinate their actions to obtain something
they desire or value – that is to acheive their goal.
1. Explain why organizations exist and the purposes they serve
An organization is a tool used by people to coordinate their actions to obtain something they desire
or value to achieve their goals.
Entrepreneurship is the process by which people recognize opportunities to satisfy needs and then
gather and use resources to meet those needs.
Five reasons for the existence of organizations are:
- To increase specializations and the divisions of labor
Example: An engineer working for General Motor might be more specialized in improving the design
of a car then an engineer working at a smaller company who has to do more things than his
counterpart at GM.
- To use large-scale technology
Economy of scale are when costs are saved when products are produced on a large scale.
- To manage the external environment
Includes everything from economic, social political and also how the organization obtains its
resources to create product or inputs and the marketplace into which it releases outputs.
Hard but an organization has the resource to develop specialists to influence the demands of the
environment.
- To economize of transactions costs
Transactions costs are costs paid to people who put time and effort in exchanging communication.
- To exert power and control
Organizations can exert great pressure on individual to perform tasks in specific manners.
Organizations exist to produce goods and services that people value.
2. Describe the relationship between organizational theory and organizational design and change,
and differentiate between organizational structure and culture
Organizational theory is the study of how organizations function and how they affect and are
affected by the environment in which they operate.
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 that an organization can control the activities necessary to achieve its goals. It must be a
continuously evolving managerial activity for a company to stay ahead of the competition.
Organizational change is 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.
,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.
3. Understand how managers can utilize (benutten) the principles of organizational theory to
design and change their organizations to increase organizational effectiveness
Today, managers are searching for new and better ways to coordinate and motivate their employees
to increase the value their organizations can create. Organizational design and change have
important implications for a company’s ability to deal with contingencies, achieve a competitive
advantage, effectively manage diversity (differences in race, gender, national origin) and increase its
efficiency and ability (also speed) to innovate.
An organization needs to design a structure to make optimal use of the talents of a diverse workforce
and to develop cultural values the encourage people to work together.
Organization Design plays an important role in innovation. For example: the way an organization’s
structure links people in different specializations, determines how fast the organization can
introduce new products.
Contingency – an event that might occur and must be planned for.
It is much more difficult to imitate organizational design and carefully manage change that
stem from a good organizational structure and culture.
o Why? Because structure and culture are embedded deep into the way people
interact and perform their tasks to get the job done. (Competitive advantage).
4. Identify the three principal ways in which managers assess and measure organizational
effectiveness
Three most important processes that managers use to assess and measure organizational
effectiveness:
- Control – having control over external environment and have the ability to attract resources and
customers.
- Innovation – developing an organizational skill and capability so that the organization can discover
new products and processes. Also create new organizational structure to adopt to changing external
environment.
- Efficiency – developing modern production facilities using new information technologies that can
produce and distribute a company’s product in a timely and cost-effective manner.
An organization is effective if it can take one of the three approaches:
1. Secure scarce and valued skills and resources from outside the organization
- Allow for evaluation of how managers manage and control its external environment.
Ex: Organization’s ability to influence stakeholders’ perceptions in its favor.
- To measure the effectiveness, managers use indicators such as stock price, profitability, ROI,
which compare the performance of their organizations with the performance of other
organizations or their competitors.
2. Creatively coordinate resources with employee skills to innovate products and adapt to
changing customer needs
- Measurement: length of time needed to make a decision.
- The amount of time needed to get new products to market
- Amount of time needed to coordinate to activities of different departments
, 3. Efficiently convert skills and resources into finished goods and services
- Allows managers to see how efficiently an organization can convert some fixed amount of
organizational skills and resources into finished goods and services.
- Can be measured by productivity and efficiency. In other words, ratio of outputs to imputs)
- External resource approach, evaluates the organization’s ability to secure, manage, and control
scarce and valued skills and resources
- Internal systems approach, evaluates the organization’s ability to be innovative and function quickly
and responsively
- Technical approach, evaluates the organization’s ability to convert skills and resources into goods
and services efficiently
Control, innovation and efficiency
Managers create goals that they use to assess how well the organization is performing. Two types of
goals used to evaluate organizational effectiveness are:
- Official goals are guiding principles that the organization formally states in its annual report and in
other public documents. Lay out the mission of the organization
- Operative goals, are specific long-term and short-term goals that guide managers and employees as
they perform the work of the organization.
5. Appreciate the way in which several contingency factors influence the design of organizations
Types of contingency: the organization’s environment, its strategy, technology and internal processes
