LECTURE 7 & 8

Evolution of Organizational Theory

Organizational Effectiveness

Evolution of Organizational Theory

Organization Theory (OT)

It is the study of organization structure and
design. It describes how organizations are
structured and suggests how they can be
constructed to improve effectiveness.
It is macro examination of an organization that
analyzes whole organization as a unit.
It is concerned not only with employee
performance and attitudes but with the overall
organization's ability to adopt and achieve its
goals.

Development of OT
There is problem of organizing OT.
Theorist suggested that there are two main
dimensions underlying the evolution of OT.
Organizations are system
Organization structure

Organizations Are System

Prior to 1960 OT tended to be dominated by a
closed system perspective.
Organizations were seen autonomous and sealed
off from their environment.
From 1960 OT began to take open system
perspective.
So previous focus on internal characteristics
started giving importance to external events and
processes.

Organization Structure
It has been broken down into two approaches:
Rational Perspective: It argues that the structure of an
organization is conceived as a vehicle to effectively
achieve specified objectives.
Social Perspective: It is opposite of the rational. It
emphasizes that structure is primarily the result of the
conflicting forces by the organization's constituents
who seek power and control.

Evolution of OT
Approx. Time
Frame

1900-1930

1930-1960

1960-1975

1975-?

Systems
Perspective

Closed

Closed

Open

Open

Ends
Perspective

Rational

Social

Rational

Social

Central Theme

Mechanical
Efficiency

People &
human
Relations

Contingency
designs

Power & Politics

Theoretical
Classification

Type1

Type2

Type 3

Type 4

Evolution (cont.)
History of urban civilization shows that people
located themselves in areas where resources
were readily available.
Paleolithic period onward men & women lived in
groups with Kingly head who laid the rules in
society.
Men were hunters and gathering brining food to
home.

Evolution (cont.)
Indus civilization (around 2500BC).
Archaeologists assume that there was a high
degree of organized labor.
For example, well planned cities in MohenjoDaro and Harappa.

Evolution (cont.)
The message that we get from old civilizations is
quite clear. Managers today need delegate authority
in large organizations.
Only unusual or exceptional decisions should flow
back up the hierarchy for resolution.
The best structure for an organization is one that
promotes comfortable working and minimizes
complexity.
Such structure would be both effective & efficient.
So organization should properly design jobs for all
employees such that the end goals are achieved.

Evolution (cont.)
Adam Smith Contribution
Industrial Revolution

Evolution (cont.)
Type 1 Theorists
Early approaches to OT in the twentieth century
conceived organization as mechanical devices to
achieve goals.
Developed universal models that would apply in all
situations. Organization as a closed system created to
achieve goals efficiently.
F.W. Taylor
Henri Fayol
Max Weber
Ralph Davis (Rational Planning)
Managements formal planning determines the
organizations objectives. These objectives , then, in
logical fashion, determine the development of structure,
the flow of authority and other relationships.

Evolution (cont.)
Type 2 Theorists
Theorist operated under the closed system
assumptions but focused the informal relations
and noneconomic motives operating in
organizations.
Organizations were not considered machines.
Management could design formal relationships &
rules.
But informal patterns were also created to meet
social needs of organization members e.g.
communication, status, norms and friendships.

Evolution (cont.)
Type 2 Theorists
Recognized the social nature of organizations. These
theorist viewed organization as made up of both tasks
and people.
Elton Mayo
Chester Barnard
Douglas McGregor
Theory X: Employees are lazy, dislike work, avoid
responsibility and must be punished to achieve goals.
Theory Y: Employees are creative, enjoy work, seek
responsibility.

Warren Bennis
Contrary to Webers bureaucracy, Warren replaced
decentralized and democratic structure organized round
flexible groups.

Evolution (cont.)
Type 3 Theorists
These theorists 1960-1970s saw organizations as
the vehicles for achieving goals.
They concentrated on size, technology, and
environmental uncertainty as the major
contingency variables that determined what the
right structure should be.
Argued that proper alignment of contingency &
structure variables would facilitate the
achievement of the organizations goals.
Wrong structure could threaten the survival of
organization.

Evolution (cont.)
Type 3 Theorists
This type focused on contingency approach.
Herbert Simon
Criticized Type-1 theorists and said that classical
principles were just proverbs and would have to
accommodate the contingency approach.

Katz & Kahns

They gave important view of an organization as an open
system in which argued the need for organizations to
adapt to a changing environment.

Aston Group
Argued that size of an organization as important variables
of structure. Large and small organizations have some
common structural components.

Evolution (cont.)
Type 4 Theorists
Among these theorists the social perspective
has made comeback but in an open-system
framework.
Structure is not the created by rational effort by
the manager, instead it is the outcome of
political struggles within the organization for
control.

Evolution (cont.)
Type 4 Theorists
Focused on political nature of an organization
March & Simons
They challenged the rational decisions and argued that
most decision makers selected satisfactory-alternatives
that were good enough. Only in exceptional cases
discovery and selection of optimal alternatives.

Pfeffer
Argued that organization design results from the power
struggle by different groups. For understanding the
organization structure we need to assess the
preferences and interests of those who can influence
over design decisions.

Changing Face of OT
Organizations today face tremendous
competition
Access to multiple markets
Products are developed for customers around
the world
Technology has got powerful status.
Communication increased inside and outside
organization.
Not restricted to local employees
Virtual organization emerged

Organizational Effectiveness

Introduction
Effectiveness of an organization in different
sectors is different.
A careful examination is required to check &
compare effectiveness of organizations. For
example:
On the average, each Toyota employee produces 57.7 vehicles
a year. In contrast, Ford gets only 16.1 vehicles from each
employee. Similarly, Toyota spends only $630 on labor for each
vehicle, whereas Ford spends $2379. Yet, Ford earns $555 per
vehicle to only $466 for Toyota.! Which company-Ford or
Toyota-would you consider more effective?

Significance of OE
Administrative sciences contributes in some way
to helping managers make organizations more
effective. For example:
Marketing.
Finance.
Production and operations management.
Organization theory
It clarifies which organization structure will lead to, or
improve, organizational effectiveness.
However, there is no universal agreement on what OE
means?

Search of Definition

1950s-simple approach to Effectiveness was the

degree to which an organization realized its goals.
Most researchers and practitioners agree that goal is a
necessary condition for an organization's success i.e.
survival. "
Survival is dead or alive evaluation.
Human beings die but most organizations don't diethey're remade.
They merge, reorganize, sell off major parts, or move
into totally new areas of endeavor.

Search of Definition (cont.)

In the real world, many organizations disappear
from the scene or reformed into another entitymaking it difficult to make a survival judgment.
Some organizations are not effective but survive
or some effective organizations purposely are
not allowed to survive.
So if survival is a goal then it also has various
issues so it needs careful scrutiny.

Search of Definition (cont.)

OE criteria 1960s to 1970s
1.Overall effectiveness
16. Planning and Goal setting
2.Productivity
17. Goal consensus
3.Efficiency
18. Internalization of organizational goals
4.Profit
19. Role and norm congruence
5.Quality
20. Managerial Interpersonal skills
6.Accidents
21. Managerial task skills
7.Growth
22.Information management &
8.Absentees
communication
9.Turnover
23. Readiness
10.Job satisfaction
24. Utilization of environment
11.Motivation
25. Evaluation by external entities
12.Moral
26. Stability
13.Control
27. Value of human resources
14.Conflict
28. Participation and shared influence
15.Flexibility/adaptation
29. Training and Development emphasis
30. Achievement emphasis

Search of Definition (cont.)

The fact that few studies used multiple criteria.
Criteria ranged from general measures such as
quality and morale to more specific factors such
as accident rates and absenteeism.
Even contradictory. For example:
Efficiency, for instance, is achieved by using resources
to their maximum. It is characterized by an absence
of slack. In contrast, flexibility/adaptation can be
achieved only by having a surplus; that is, by the
availability of slack.

Search of Definition (cont.)

No doubt part of the length of (Table) is due to
the diversity of organizations being evaluated.
Additionally, it also reflects the different
interests of the evaluators.
Criteria chosen to define OE may tell more about
the person doing the evaluation than about the
organization being evaluated.
Criteria cannot be relevant to every organization,
and certainly some must be more important
than others.

Search of Definition (cont.)

Three decades ago defining OE was equivalent to
trying to nail some jelly to the wall.
Recent OE literature, however, indicates that
scholars may have been focusing for so long on
differences that commonalities have been
overlooked.
There is almost unanimous agreement today that
OE requires multiple criteria.
We all make OE Judgments regularly, whenever
we buy stock, choose a college, select a bank or
car-repair shop.

Goal-Attainment Approach
An organization is, by definition, created
deliberately to achieve one or more specified
goals.
That goal attainment is probably the most widely
use criterion of effectiveness.
Organization's effectiveness must be appraised in
of the accomplishment of ends.
Popular goal attainment criteria include profit
maximization, bringing the enemy to surrender,
winning the game, restoring patients to good
health etc.

Assumptions
Must have ultimate goals.
These goals must be identified and defined well
enough to be understood.
These goals must be few enough to be
manageable.
There must be general consensus or agreement
on these goals.
Progress toward these goals must be
measurable.

Problems
Whose goals? Top management's? If so, who is
included and who is excluded?
Some of the decision makers with real power and
influence in the organization are not members of
senior management.

Officially goals does not always reflect the

organization's actual goals.
Vague statements "continuously improve patient
satisfaction," "to be a responsible member of the
community.

Short-term goals are frequently different from its

long-term goals.
Multiple goals "high product quality" and "low
unit cost.
Sometimes goals are set as per previous success.

Value to Managers
Organizations exist to achieve goals-the problems
lie in their identification and measurement .
Input should be received from all those having a major
influence on formulating the official goals, even if they are
not part of senior management.
Include actual goals obtained by observing the behavior of
organization members.
Recognize that organizations pursue both short- and longterm goals.
Insisting on tangible, verifiable, and measurable goals
rather than relying on vague statements.
Viewing goals as dynamic entities that change over time
rather than as rigid or fixed statements of purpose.

The Systems Approach

Organizations in a systems framework while
goals approach focused on outputs.
Organization should also be judged on its ability
to acquire inputs, process these inputs, channel
the outputs, and maintain stability and balance.
In systems approach, end goals are not ignored.
System models emphasize criteria that will
increase the long-term survival of an
organization-such as:
The Ability to acquire resources,
Maintain itself internally as a social organism,
Interact successfully with its external environment

Assumptions
Effectiveness requires awareness and successful
interactions with environmental constituencies.
Management should maintain good relations
with constituencies that have the power to
disrupt the stable operation of the organization
Raw materials must be secured.
Vacancies created by employee resignations and
retirements must be filled, declining product
lines must be replaced.

Problems
Measuring specific end goals may be easy
compared with trying to measure process
variables such as:
Flexibility of response to environmental changes" or
"clarity of internal communications.

The objective is to win, not to get out there and

look good losing!
The problem with the systems approach, at least
according to its critics, is that its focus is on the
means necessary to achieve effectiveness rather
than on organizational effectiveness itself.

Value to Managers
Managers who use a systems approach to OE
are less prone to look for immediate results.
Systems approach increases managers'
awareness of the interdependency of
organizational activities.
Systems approach has applicability where end
goals either are very vague or defy
measurement.

The Strategic-constituencies Approach

This Approach proposes that an effective
organization is one that satisfies the demands of
those constituencies in its environment from
whom it requires support for its continued
existence.
It seeks to appease only those in the
environment who can threaten the
organization's survival.

Assumptions
They are assumed to be political arenas where
vested interests compete for control over
resources.
Success of the organization is based on the
satisfaction of those critical constituencies, upon
whom the future survival of the organization
depends.
Each of constituency trying to satisfy its demands.
And has unique set of values, so it is unlikely that their
preferences will be in agreement.

Management goals are not value free.

Problems
Separating the strategic constituencies from the
larger environment is easy to say but difficult to do
in practice.
Environment changes rapidly. What was critical to
the organization yesterday may not be so today.
Separating the most important strategic
constituencies from all strategic constituencies.
Fulfilling the preferences of the dominant
coalition.
Identifying the expectations that the strategic
constituencies have for organization.

Value for manager

Through this approach Managers cant ignore
a group whose power could significantly
hinder the organization's operations.
To get support, management could modify its
preference ordering of goals as necessary to
reflect the changing power relationships
strategic constituencies.

THE COMPETINGVALUES APPROACH

The competing-values approach offers an
integrative framework.
Competing-values approach is that the criteria
You value and use in assessing an
organization's effectiveness.
It is not surprising that different people evaluate
organizational effectiveness entirely differently.
The rating, therefore, probably tells us more
about the values of the evaluator.

Assumptions
It begins with the assumption that there is no "best"
criterion for evaluating an organization's
effectiveness.
Neither a single goal that everyone can agree upon
nor a consensus on which goals take precedence
over others.
So the concept of OE, itself, is subjective.

Competing-values approach argues that there are

common elements underlying any comprehensive
list of OE criteria.
It assumes that these elements can be combined to
create basic set of competing values.

Competing Value Framework

Began with a search for common themes among
the thirty OE criteria.
Three basic sets of competing values.
Flexibility versus control
Flexibility- values innovation, adaptation, and change
Control- favors stability, order, and predictability

People versus Organization

Well-being and development of the people versus organization
(productivity & task accomplishment)

Means versus ends

Internal processes (the long term) versus ends emphasizing
final outcomes (the short term)

Competing Value Framework

Competing Value Framework

These three sets of values can be depicted as a threedimensional diagram
Values can further be combined to form eight cells
OFM (Organization, flexibility, means)= Flexibility
OFE (Organization, flexibility, ends)= acquisition of
resources
OCM (Organization, control, means)= Planning
OCE (Organization, control, ends)= Productivity & efficiency
PCM (People, control, means)= Availability of information
PCE (People, control, ends)= Stability
PFM (People, flexibility, means)= Cohesive work force
PFE (People, flexibility, ends)= Skilled work force

These eight cells are combined to form a distinct model

of OE

How it works

Identify Strategic Constituency, which dominant

coalition consider critical for organizations
survival.
After the strategic constituencies have been
isolated, it is necessary to calculate the importance
that each constituency places on the eight value
sets.
This is not a simple task because it requires
management to put itself in the shoes of each
strategic constituency or actually interview
constituency members.

Organizational Life Cycle & CVF

It has been argued that organizational life cycle
impacts CVF for OE. For example:
Entrepreneurial stage, collectivity stage,
formalization stage, elaboration of structure
stage, and decline stage

Value for manager

By reducing a large number of effectiveness
criteria into four conceptually clear
organizational models, the competing-values
approach can guide the manager in identifying
the appropriateness of different criteria to
different constituencies and in different life-cycle
stages .
So CVF helps managers to assess the
effectiveness of organizations with various
perspectives.