SAMENVATTING: ORGANIZATION THEORY AND DESIGN
1. Part 1: Organization theory as a science
Organization theory as a field of study
= broad field that examines how organizations function and adapt to remain successful.
Diverse concerns:
- Management: How to ensure that managers act in the best interests of a firm’s owners?
- Balancing external and internal factors: How to achieve goals by managing environmental
demands & maximizing core competencies?
- Outsourcing decisions: When should certain operations of a firm be outsourced?
- How to move an organization from its present condition to a desired state as it struggles to
create value and survive (Endgame?)
Endgame = the final strategic phase in which an organization evaluates whether to
adapt, innovate, or transform its operations to sustain value and remain competitive.
Concerns about theories and models:
§ How does the environment influence organization strategy, structure and design?
§ How does the organization influence the environment? (vica versa)
§ How can the actions of individual members of society be linked with the broader social
structures of society?
Abstract concerns: ethical dimensions:
§ Why do people in contemporary society feel so separated from themselves, their actions and
their surroundings?
§ What are the power relations behind theories about organizations? All about power games…
Power relations = refer to the hidden dynamics of control, influence and authority
within workflows, shaping decision-making, access to information, and organizational
structures.
§ How do organizational scholars might become more reflective within their empirical or
theoretical writings?
1.1 What is Organization Theory (OT) and why study it?
ð OT = range of theories and models that aim to explain how organizations function and relate
to the environment (surroundings of organizations)
= Holistic approach
The driving force behind OT is the idea that we can design organizations they operate:
1. Efficiently – utilizing their resources in a cost-effective way
2. Effectively – achieving their goals
3. Responsible – in a way that respects the community, society and the environment
The term organization goes beyond a company
§ The term ‘organization’ implies that there is some sort of structure and order to the way
things are done
§ Definitions center around the idea that organizations are entities in which individuals
coordinate their actions to achieve specific goals
Definitions of organizations – they can be:
§ Small family-owned businesses
§ Multinational corporations,
, § For-profit or non-profit
§ Private or public
§ Service or product oriented
§ Government agencies
§ Etc.
1.1.1 Organizations all around
§ We experience organizations every day - as we go to university, buy a house, travel on
holiday, eat in a restaurant, or visit a hospital.
§ We experience different parts of an organization (customer service, administration,
accounting, etc.),
§ We probably don’t think about how these parts work together unless we have a problem:
§ If we don’t receive the expected service, or the product we’ve purchased is faulty –
which means something in the organization isn’t functioning the way it should be
§ You don’t realize there is an organization running behind it until you have a problem
1.1.2 Organization theory
1) Fun and very useful
§ OT is NOT a theoretical and abstract discipline – its fun ;-0
§ Many of the theories are based on studies of what happens in organizations
§ Managers use organization theory every day as they think about ways of organizing the work
in their department (division of labour: Marxism)
§ OT helps us to think about how the work needs to be coordinated with work in other
departments (integration) & how to create a work environment that encourages
organizational members to work together towards goals (culture)
2) Managerial guide
§ To study OT will sharpen your explicit and systematic knowledge to steer a company
§ OT gives managers a range of theories, concepts, models and tools that they can use to
diagnose problems and help their department and organization function more effectively
Effective / ineffective organization structure
§ Ineffective organization structure reduces productivity and competitiveness
§ It can lead to low morale as employees struggle to achieve their goals
§ Effective organization structure and design allows organizational members to do the
following:
§ Deal with contingencies such as changing technology, markets and competition
§ Gain a competitive advantage by developing the core competencies and strategies to
enable them to outperform other companies
§ Work in an effective, supportive and responsive environment
§ Increase efficiency and innovation
Studying OT – Three issues you might be find helpful:
1. We are studying individual topics, but everything is interrelated
2. No theory is complete, no one theory applies in every situation, nor is it an accurate
description of the way organizations really are – theory is a lens or framework for viewing
the world
3. When reading about the theories, think about how they might apply to organizations with
which you are familiar – either as an employee, a customer, a student or a volunteer
,Theories as a lens
§ While many of the theories are based on actual studies of organizations, they offer a lens, or
way of thinking about organizations, rather than describing the way organizations really
function.
§ Theories are a researcher’s (or a group of researchers’) way of analyzing what they
see
§ Theories help you to make general assumptions on what you look at
§ You will find that different theories will offer different ways of thinking about the same issue,
some are contradictory, and some might be more helpful than others when trying to
understand an organization you are studying or are working in
§ Each organization operates under its own unique set of circumstances. Theories are most
useful if you use different ones to give you different perspectives on what might be
happening in your organization
§ This is the value of OT – by using different lenses you will broaden your understanding about
how organizations can be designed and managed in more effective ways
An overview of aspects of OT = puzzle
Video – organization theory:
• OT = how organizations function internally and interact with their environment
• OT has evolved from rigid structures to a more human-centered approach, balancing
efficiency and employee motivation
1.2 Agency theory
= A theory that looks at how to ensure that agents (executives, managers) act in the best interests of
the principals (owners, shareholders) of an organization (from perspective of the company)
§ This happens because of the separation of ownership and control, when the owner of the
company or the board of directors (the ‘principals’) have to employ managers (‘agents’) to
run the business and need to monitor their performance to ensure they act in the owner’s
interest
, Individidual / management
§ Monitoring the performance of individual work effort is always a cost of any firm and that
organizational inefficiencies are created when the flow of information on individual
performance is decreased or blocked
§ Based on the idea that employees (at any level) will have diverse goals, two main agency
problems are identified:
§ How to align the conflicting goals of principals and agents,
§ How to ensure agents perform in the way principals expect them to?
Example principle / agent
§ Agency problems can also occur when executives or managers have a different attitude
toward risk from that of the owners or shareholders
§ Sales versus development
§ Research versus sales
§ Party versus government (example China)
Solution to agency problems
§ The solution to either of these agency problems is to ensure that executives or managers act
in the best interests of the owners
§ But how?
§ By increasing the amount and quality of information available to principals and
making senior executives part owners of the firm through their compensation
packages
§ This contract between the principal and agent is the unit of analysis for agency theory from
which scholars will attempt to determine:
§ The most efficient contract governing the principal-agent relationship given
assumptions about people (e.g. self-interest, bounded rationality, risk aversion) &
§ Organizations (e.g. goal conflict among members), and information (e.g. information
is a commodity which can be purchased) (Eisenhardt, 1989: 58)
Video – agency theory:
• Relationship between a principal and an agent
• Conflicts may arise: principial relies on the agent for decisions, but their interests can differ
o Individuals: act out of self-interest
o Agents: have more information and decision making power
• Types of principal-agent relationships:
o Shareholders and management teams: management might take on higher risks
o Investors and fund managers: fund managers might prioritize their own interests
• Strategies to minimize agency problems
o Contract: clear, detailed
o Restrictions: limiting the agent’s power to ensure the principal’s control
o Evaluations
o Bonuses
o Transparency
1.3 Conclusion
§ OT is a range of theories and models that aim to explain how organizations function and
relate to the environment (system)
§ OT is a field of study with multiple dimensions (makes it more fun and exciting)
1. Part 1: Organization theory as a science
Organization theory as a field of study
= broad field that examines how organizations function and adapt to remain successful.
Diverse concerns:
- Management: How to ensure that managers act in the best interests of a firm’s owners?
- Balancing external and internal factors: How to achieve goals by managing environmental
demands & maximizing core competencies?
- Outsourcing decisions: When should certain operations of a firm be outsourced?
- How to move an organization from its present condition to a desired state as it struggles to
create value and survive (Endgame?)
Endgame = the final strategic phase in which an organization evaluates whether to
adapt, innovate, or transform its operations to sustain value and remain competitive.
Concerns about theories and models:
§ How does the environment influence organization strategy, structure and design?
§ How does the organization influence the environment? (vica versa)
§ How can the actions of individual members of society be linked with the broader social
structures of society?
Abstract concerns: ethical dimensions:
§ Why do people in contemporary society feel so separated from themselves, their actions and
their surroundings?
§ What are the power relations behind theories about organizations? All about power games…
Power relations = refer to the hidden dynamics of control, influence and authority
within workflows, shaping decision-making, access to information, and organizational
structures.
§ How do organizational scholars might become more reflective within their empirical or
theoretical writings?
1.1 What is Organization Theory (OT) and why study it?
ð OT = range of theories and models that aim to explain how organizations function and relate
to the environment (surroundings of organizations)
= Holistic approach
The driving force behind OT is the idea that we can design organizations they operate:
1. Efficiently – utilizing their resources in a cost-effective way
2. Effectively – achieving their goals
3. Responsible – in a way that respects the community, society and the environment
The term organization goes beyond a company
§ The term ‘organization’ implies that there is some sort of structure and order to the way
things are done
§ Definitions center around the idea that organizations are entities in which individuals
coordinate their actions to achieve specific goals
Definitions of organizations – they can be:
§ Small family-owned businesses
§ Multinational corporations,
, § For-profit or non-profit
§ Private or public
§ Service or product oriented
§ Government agencies
§ Etc.
1.1.1 Organizations all around
§ We experience organizations every day - as we go to university, buy a house, travel on
holiday, eat in a restaurant, or visit a hospital.
§ We experience different parts of an organization (customer service, administration,
accounting, etc.),
§ We probably don’t think about how these parts work together unless we have a problem:
§ If we don’t receive the expected service, or the product we’ve purchased is faulty –
which means something in the organization isn’t functioning the way it should be
§ You don’t realize there is an organization running behind it until you have a problem
1.1.2 Organization theory
1) Fun and very useful
§ OT is NOT a theoretical and abstract discipline – its fun ;-0
§ Many of the theories are based on studies of what happens in organizations
§ Managers use organization theory every day as they think about ways of organizing the work
in their department (division of labour: Marxism)
§ OT helps us to think about how the work needs to be coordinated with work in other
departments (integration) & how to create a work environment that encourages
organizational members to work together towards goals (culture)
2) Managerial guide
§ To study OT will sharpen your explicit and systematic knowledge to steer a company
§ OT gives managers a range of theories, concepts, models and tools that they can use to
diagnose problems and help their department and organization function more effectively
Effective / ineffective organization structure
§ Ineffective organization structure reduces productivity and competitiveness
§ It can lead to low morale as employees struggle to achieve their goals
§ Effective organization structure and design allows organizational members to do the
following:
§ Deal with contingencies such as changing technology, markets and competition
§ Gain a competitive advantage by developing the core competencies and strategies to
enable them to outperform other companies
§ Work in an effective, supportive and responsive environment
§ Increase efficiency and innovation
Studying OT – Three issues you might be find helpful:
1. We are studying individual topics, but everything is interrelated
2. No theory is complete, no one theory applies in every situation, nor is it an accurate
description of the way organizations really are – theory is a lens or framework for viewing
the world
3. When reading about the theories, think about how they might apply to organizations with
which you are familiar – either as an employee, a customer, a student or a volunteer
,Theories as a lens
§ While many of the theories are based on actual studies of organizations, they offer a lens, or
way of thinking about organizations, rather than describing the way organizations really
function.
§ Theories are a researcher’s (or a group of researchers’) way of analyzing what they
see
§ Theories help you to make general assumptions on what you look at
§ You will find that different theories will offer different ways of thinking about the same issue,
some are contradictory, and some might be more helpful than others when trying to
understand an organization you are studying or are working in
§ Each organization operates under its own unique set of circumstances. Theories are most
useful if you use different ones to give you different perspectives on what might be
happening in your organization
§ This is the value of OT – by using different lenses you will broaden your understanding about
how organizations can be designed and managed in more effective ways
An overview of aspects of OT = puzzle
Video – organization theory:
• OT = how organizations function internally and interact with their environment
• OT has evolved from rigid structures to a more human-centered approach, balancing
efficiency and employee motivation
1.2 Agency theory
= A theory that looks at how to ensure that agents (executives, managers) act in the best interests of
the principals (owners, shareholders) of an organization (from perspective of the company)
§ This happens because of the separation of ownership and control, when the owner of the
company or the board of directors (the ‘principals’) have to employ managers (‘agents’) to
run the business and need to monitor their performance to ensure they act in the owner’s
interest
, Individidual / management
§ Monitoring the performance of individual work effort is always a cost of any firm and that
organizational inefficiencies are created when the flow of information on individual
performance is decreased or blocked
§ Based on the idea that employees (at any level) will have diverse goals, two main agency
problems are identified:
§ How to align the conflicting goals of principals and agents,
§ How to ensure agents perform in the way principals expect them to?
Example principle / agent
§ Agency problems can also occur when executives or managers have a different attitude
toward risk from that of the owners or shareholders
§ Sales versus development
§ Research versus sales
§ Party versus government (example China)
Solution to agency problems
§ The solution to either of these agency problems is to ensure that executives or managers act
in the best interests of the owners
§ But how?
§ By increasing the amount and quality of information available to principals and
making senior executives part owners of the firm through their compensation
packages
§ This contract between the principal and agent is the unit of analysis for agency theory from
which scholars will attempt to determine:
§ The most efficient contract governing the principal-agent relationship given
assumptions about people (e.g. self-interest, bounded rationality, risk aversion) &
§ Organizations (e.g. goal conflict among members), and information (e.g. information
is a commodity which can be purchased) (Eisenhardt, 1989: 58)
Video – agency theory:
• Relationship between a principal and an agent
• Conflicts may arise: principial relies on the agent for decisions, but their interests can differ
o Individuals: act out of self-interest
o Agents: have more information and decision making power
• Types of principal-agent relationships:
o Shareholders and management teams: management might take on higher risks
o Investors and fund managers: fund managers might prioritize their own interests
• Strategies to minimize agency problems
o Contract: clear, detailed
o Restrictions: limiting the agent’s power to ensure the principal’s control
o Evaluations
o Bonuses
o Transparency
1.3 Conclusion
§ OT is a range of theories and models that aim to explain how organizations function and
relate to the environment (system)
§ OT is a field of study with multiple dimensions (makes it more fun and exciting)
