Organization

Prof.
Kul Narsingh Shrestha : Principles of Management / 1

LEARNING OBJECTIVES

Define the term organization and organizational goals.
Describe the nature and purposes of organizational goals.
Identify the types of organizational goals.
Discuss the goal formation process.
Describe the features of effective organizational goals.
Identify the reasons for goal succession and goal displacement in the
organization.

CHAPTER
1
The Nature of Organization

Prof. Kul Narsingh Shrestha : Principles of Management / 2

A. ORGANIZATION: MEANING, CHARACTERISTICS AND
TYPES
An organization comes into existence when there are a number of persons willing to
contribute towards a common goal. It is a human association for the attainment of a common
goal.
Etzioni (1964) has described organizations as "planned units, deliberately structured for
the purpose of attaining goals." Thus, organizations are goal seeking devices. It is the formal
association of two or more people who agree to seek a common goal through efficient
integration and implementation of plans. Hence, a basic element of any organization is a
goal.
According to Mooney and Reily :
Organization is the form of every human association for the attainment of a common purpose/goal.
According to S. P. Robbins and M. Coulter :
An organization is a deliberate arrangement of people to accomplish some specific purpose.
According to R. Griffin :
Organization is a group of people working together in structured and coordinated fashion to achieve
a set of goals.
We may define organization as a collection of individuals working together in a
division of labor to achieve a common goal. This definition contains four basic components
of an organization as shown in figure 1.1.

First, an organization is a collection of people. Their combined effort produces synergy
or a total effort that is greater than the sum of the individual efforts. Second, through division
CHAPTER
1
The Nature of Organization

Figure 1.1: Basic Components of Organization
Basic
Components
of
Organization

1. Collection of People
2. Division of Labor
3. Coordination of Work
4. Common Goal

of labor or specialization the work is subdivided which permits individuals to develop
expertise in their assigned task. As a result, they improve their own and the group's
effectiveness. Third, these specialized tasks must be coordinated as the people work together
towards the fourth component, a common goal. Thus, an organization is a group of people
who come together to attain a common goal.
Characteristics of Organization
From the above definitions of organization, the characteristics of an organization are as
follows:
1. Goal Orientation: An organization is deliberately created to achieve certain goals.
Without a goal no organization would have a reason to exist. They provide direction
and guide actions of the organization. A typical organization seeks to accomplish three
primary goals: profit, growth, and survival. Goals can be multiple and conflicting.
2. Social Composition: Organization is a human association which, consists of two or
more people. They set and pursue common goal. They work together and develop
social relations and social interactions.
3. Structure: An organization is a structure, in which jobs to be performed are arranged in
a hierarchy. The coordination and integration of human activities requires a structure
where various people are fitted. Within the structure, people work to achieve the
common goal.
4. Differentiated Functions: Organizations must have people with different skill and
knowledge to perform varied types of functions to achieve the common goals. For
efficiency, organizations typically divide the work so members can specialize in one or
two areas. Every function is assigned to the employee who is most fit to perform the
particular function.
5. Rational Coordination: The efforts of various people working in different functional
areas need to be coordinated. Work activities are coordinated in some rational manner
to achieve common goal. If different departments work independently, it may lead to
chaos and make uncertain to achieve common goal.
6. Continuity: Members may join and leave the organization. But organization continues
and enjoys eternal entity. Most organizations are born with the intention of staying
alive, although that does not always happen.
7. Environment: Organization exists and operates in a dynamic environment. Its internal
as well as external environment such as economic, social, political-legal and technical
environment influence every organization. Hence, organizations have to maintain a
close relationship with them.
Modern organizations tend to be large and complex. These characteristics differentiate
an organization from other social units, such as community, family, friendship group, etc.
Types of Organization
Organizations may be classified on several bases such as size- small, medium, large, and
giant, ownership- public, private, and joint, legal form- sole trading, partnership, joint stock
company, cooperative society, and multinational company. Organizations can be classified as
follows on the basis of their objectives:

1. Business organization: They are formed for earning profits. They are mainly concerned
with producing goods and services of value to the society. Companies, partnership firms,
and sole trading firms are organized along these lines with a profit motive to survive
against competition, future expansion and development. Their prime beneficiaries are
their owners.
2. Government organizations: Such organizations are formed for the satisfaction of the
people and their welfare. They are engaged in public services. They can be government
departments, ministries and public corporations. Their prime beneficiaries are general
public.
3. Service Organizations: Service organizations are voluntary organizations, which are
formed for promoting social welfare activities in the country. They are non-profit social
organizations such as schools, hospitals, social welfare agencies, etc. The prime
beneficiaries are the clients who come in the direct contact with the organization.
4. Political Organization: Political organizations render services to upliftment of the
society. They seek to elect a member of their group to public office of the country such as
parliament, district committee, etc. Political parties and associations come under this
category.
5. Religious Organizations: They serve for the attainment of spiritual needs of members
and try to convert non-believers to their faith. Churches, Vishwa Hindu Parishad, etc.
come under this category.
6. Associative Organizations: They satisfy the needs of people to make friendships and to
have contact with others who have common interests. Clubs, team, etc. come under this
category.
7. International Organizations: They are association of many countries. It can be
international or regional associations such as UNDP, World Bank, ASEAN, SAARC, etc.
The prime beneficiaries are member countries.

Blau and Scott have pointed out an alternative classification of organizations based on beneficiary
wise. It is one of the most widely accepted types of organizations. They are:
1. Mutual Benefit Organizations: These are organizations which come up voluntarily for mutual
benefit. Political parties, trade unions, professional associations, etc. are the common examples of
such mutual benefit organizations. Though all members in such associations are equal, these still
suffer from membership apathy and oligarchical control. Their main beneficiaries are their own
members.
2. Business Organizations: Such organizations are also known as economic organizations. The
owners' main concern is the maximum return on investment at minimum cost in order to further
survival and growth. The main problem encountered in such organizations is the problem of
maximizing operating efficiency. In the long run, employees, customers, government, society, etc.
also derive benefits due to social responsibility of business. The owners are the prime
beneficiaries.
3. Service Organizations: Welfare agencies, charitable societies, schools, and hospitals, etc. come
under this classification. Such organizations suffer from the problem of beneficiaries' control over
them. The prime beneficiaries are the clients or those who come in the direct contact with the
organizations.
4. Commonweal Organizations: Such organizations include certain government departments,
armed forces, police forces, fire fighting departments, post offices etc. The basic characteristic of
such organizations is that the public at large is their beneficiary. Such organizations are governed
on bureaucratic pattern.

B. ORGANIZATIONAL GOALS: CONCEPT, PURPOSES AND
TYPES
Every organization has goals. Goals are desired ends of organizational activity. They
are broad statements, which an organization aims to achieve in future. Organizational goal
may be defined as a decided statement what the organization wants to achieve in the
future. Etzioni (1964) defines organizational goal as "a desired state of affairs that
organizations attempt to realize". Hence, goals refer to the future destinations of an
organization.
The formulation of organizational goals is the first stage of the overall planning process.
The goals are variously referred to as 'purpose', 'mission', 'target', or 'objective'. Plans,
strategies, and policies cannot be formulated unless the goals have been clearly identified and
defined. They guide actions of organizations.
Organization accumulates and utilizes physical, financial, and human resources to meet
their goals. Goals are yardsticks or benchmark against which the success of an organization is
measured. Hence, they are useful for measuring, comparing, and evaluating results. Goals
provide the basis and direction for the performance of all other managerial functions.
From the above discussion, the nature of organizational goals is as follows:
(1) Related to Future: Goals are always related to future. They are statements, which
an organization aims to achieve in the future. Goals provide a clear vision of future.
(2) Multiple in Numbers: Goals are needed in all areas of organization. This implies
that every organization has a package of goals set in various key areas. According to Peter F.
Drucker, there are eight key areas in which objectives have to be set- market standing,
innovation, innovation, productivity, physical and financial resources, profitability, manager
performance, worker performance and attitude, and social responsibility.
(3) Types of goals: Organizational goals exist at each organizational level. Goals vary
by organizational level. According to Griffin each organization needs to define mission,
strategic, tactical, and operational goals. But March and Simon (1958) and Perrow (1961)
have divided organizational goals into official (strategic), operative (tactical) and operational
goals.
(4) Goals have Hierarchy: Goals are hierarchical from corporate mission to specific
individual goals. The goals of the organization form a hierarchy from top to the lowest
position in the organization structure. The goals set at top level form the basis of
departmental goals and in turn the departmental goals form the basis of lower level, and so on.
(5) Goals are Conflicting: Organizations have many goals which tend to be different.
These goals are not only complementary but also conflicting with one another. For example-
manufacturing firm could have such goals as to (a) produce a stylish product, (b) produce a
high quality product, and (c) keep the production cost to minimum. The first two goals to
produce a stylish product with high quality conflict with the goal to keep manufacturing costs
as low as possible.
(6) Criteria for Effective Goals: The criteria of effective goals are the same, whether
it is strategic, tactical or operation. Firstly, goals must cover key dimensions, Secondly, they
should be specific, measurable, challenging but realistic, rewards linked and time linked.

Purposes of Organizational Goals
Organizational goals serve many valuable purposes as explained below:
(1) Source of Guidance: Organizational goals provide a source of guidance and a
sense of unified direction. They serve as a basis for cooperative and organized efforts.
(2) Aids to Planning: Organizational goals facilitate the difficult task of organizational
planning. They provide basis for the formulation of plans, strategies, policies, etc. There
cannot be any planning without goals.
(3) Aids to Decision Making: Goals provide a clear definition of what the
organization wishes to accomplish. They provide the rationale to the management to make
consistent and interrelated decisions that assure desired outcomes. Decisions are indeed a
means for accomplishing the desired goals.
(4) Source of Motivation: Goals provide a sense of purpose to organizational
members, which may become a source of motivation and commitment to the organization.
They also serve as strong motivators to boost the performance of them.
(5) Aid to Evaluation and Control: Organizational goals define the outcomes and
guide the actions. They serve as a standard against which actual outcomes can be evaluated
and control mechanism to assure in achieving desired goals.
Types of Organizational Goals
Griffin has identified 4 levels of organizational goals as shown in figure 1.2. Each
organization needs to define mission, strategic, tactical, and operational goals.
(1) Mission Goals: An organization's mission is the vision of top management about
the organization. It is a statement of its basic reason for existence. The basic mission
statement should be directed towards the satisfaction of a human need that will always exist.
It is a relatively permanent part of an organization's identify. The mission statement sets the
stage for strategic goals.
(2) Strategic Goals: Strategic goals are formal statements of purpose made by top
management. They are broad statements, which define what the organization formally wants
to achieve in the future. They indicate the real intentions of an organization. They are
established for the overall organization. For example, maximize profit, contribute to
community welfare etc. They are also known as official goals.
(3) Tactical Goals: Tactical goals are established by middle manager. They focus on
operationalizing organizational efforts to achieve strategic goals. They reflect what an
organization is actually trying to do. Tactical goals may or may not be widely publicized.
(4) Operational Goals: Operational goals are established by lower level managers.
They specify results that are to be accomplished by each department. They have built in
standards, which can be used to determine whether goals are being met. For example,
manufacture and sell 40,000 television sets this year. It has clearly measurable standard
concerning volume and time. Operational goals tend to be the most specific and measurable.


Relative Importance of Goals
Organizations have many goals, which tend to be different. These goals are not only
complementary but also they are conflicting with one another. We can gain greater
insight into organization's nature and character if we can tell which goals are more important.
The findings of a survey carried on a series of potential corporate goals by England (1967) are
shown in the following table.
MISSION
Our mission is to operate a chain of restaurants that will prepare and
serve high-quality food on a timely basis and at reasonable prices.
STRATEGIC GOALS
President
- Provide 14% return to investors for at least 10 years.
- Start or purchase new restaurant chain within 5 years
- Negotiate new labor contract this year.

TACTICAL GOALS
Vice-president:
Operation
Vice-president:
Marketing
Vice-President:
Finance
- Open 150 new
restaurants during
next 10 years.
- Decrease food-
container costs by
15% during 5 years.
- Decrease average
customer wait by 30
seconds this year
- Increase per store
sales 5% per year for
10 years.
- Target and attract 2
new market segments
during 5 years.
- Develop new
promotional strategy
for next year.
- Keep corporate debt to
no more than 20% of
liquid assets for next
10 years.
- Develop computerized
accounting system
within 5 years.
- Earn 9% on excess
cash this year.

OPERATIONAL GOALS
Restaurant Manager Adverting Director Accounting Manager
- Implement
employee
incentive systems
within 2 years.
- Decrease waste
by 5% this year.
- Hire and train
new assistant
manager.
- Develop regional
advertising
campaigns within 3
years.
- Negotiate 5% lower
advertising rates next
year.
- Implement this year's
promotional strategy.
- Split accounts
receivable/ payable
functions from other
areas within 2 years.
- Computerize payroll
system for each
restaurant this year.
- Pay all invoices
within 30 days.
Figure 1.2: Types of Organizational Goals (Source: Griffin, 1990)

These findings show organizational efficiency and high productivity are more important
goals for managers than employee welfare and social welfare. They provide further clues
about an organization's intentions and actions.

Type of Goals
% Rating Goal as
highly Important
% Indicating Goal
is significant for
corporate success
Organizational efficiency 81 71
High productivity 80 70
Profit maximization 72 70
Organizational growth 60 72
Industrial leadership 58 64
Organizational stability 58 54
Employee welfare 65 20
Social Welfare 16 8

C. FEATURES OF EFFECTIVE ORGANIZATIONAL GOALS
Effective goals are written in terms of outcomes. The features of effective goals are as
follows:
1. Cover Key Dimensions: Management cannot establish goals for every aspect of
organizational and employee performance. Instead, management needs to identify those
few success areas that are the most critical to organizational performance and survival.
2. Specific and Measurable: Goals should be stated clearly. If goals are vague and
ambiguous, employees won't understand them and measurement will be equally
ambiguous. Hence, the goals must be quantitatively measurable if they are to be used to
evaluate performance in an objective manner. For example, a goal to "increase market
share" is not specific but "increase market share by four percent" is specific and
measurable.
3. Challenging but Attainable: Goals should be achievable yet challenging. If the goal
is unreachable, the individual may give up without an effort or discouraged for chasing
the impossible dream. Thus, goals should be both challenging enough to motivate
performance and attainable so that the person can enjoy a sense of accomplishment.
4. Time Linked: There should be a specific time period for accomplishing every goal.
For example, the goal should be to "increase market share by four percent within one
year".
5. Reward Linked: The achievement of the goal must be linked to positive payoff such as
promotion, salary increase, and other rewards of value to the individual. The
organization must reward those who meet their assigned goals. Without rewards, goals
and their attainment have no true meaning to the individual.

6. Communicated to All: Effective goals are communicated to all organizational
members who need to know the goals. It ensures that what they need to perform to
accomplish the organizational goals.
Features of Effective Goals
1. Cover key dimensions 2. Specific and measurable
3. Challenging but attainable 4. Time linked
5. Reward linked 6. Communicated to all

D. GOAL FORMATION: PROCESS AND APPROACHES
Organizations are deliberate and purposive creation, which have some goals. Goals or
objectives (terms used interchangeably) are the end results towards which the activities of an
organization are directed. The process of goal formation is not simple but quite complex.
Further, the goals must be clearly stated so that the concerned persons can understand them
clearly.
The process of goal formation varies in business and social organizations. Within
business organization also the process may be affected due to attitude of higher management,
efficiency of managers, and workers participation in management. Virtually all organizations
have a formal, recognized, legally specified organ for forming the initial goals and their
amendments. Generally, top management determines the overall objectives. However, there
are at least three ways to view the basic processes of goal formulation:
(1) Traditional Goal Formulation Process
Traditionally in the organizational hierarchy managers at different levels are concerned
with different types of goals. In the goal formation process, the board of directors and top
managers are involved in determining the mission or purpose of the organization as well as
overall organizational or strategic goals. Department heads or middle level managers are
involved in determining the goals of key result areas such as production, marketing, finance,
etc. They focus on operationalizing organizational efforts to achieve strategic goals.
Similarly, the lower level managers are involved in the goal formation of each department as
well as goals of their subordinates at unit levels. The goals are not formed in isolation but
managers at different levels are involved who are actually responsible to translate them into
practice.
In the formation of goals, there is some controversy about whether an organization
should use the top-down approach or bottom-up approach. In top-down approach upper
level managers determine goals for subordinates. They may seek the help of experts in the
process of formulating goals. After approving the goals, the board of directors then circulates
downward in the organization. It is assumed that top management knows what is best for the
organization. This approach suggests that the organization needs direction through board of
directors and top managers.
In the bottom-up approach subordinates initiate in the formation of goals for their
positions and present them to their superiors. They draft goals within the broad guidelines
provided to them. Top level managers form the overall goals by integrating the goals

presented before them. Modifications can be made with consultation with the concerned unit.
They argue that top management needs information from lower levels. In addition, bottom-up
approach permits greater employee participation, and subordinates are likely to be more
highly motivated by and committed to goals initiated by them.
Both the approaches have positive and negative points by which conclusion cannot be
drawn. To take the advantages of both approaches balance between the two should be striked.
(2) Management By Objectives (MBO)
The concept of MBO is said to be evolved by Peter F. Drucker during the fifties for
effective goal setting and performance appraisal. In recent years MBO has gained
considerable popularity due to environmental pressures, growing competition, increasing
attention on long range planning, need for result-oriented performance appraisals, etc. MBO
can be described as a process whereby superiors and subordinates jointly identify specific
measurable goals. Participative goal setting and joint evaluation of performance constitute the
heart of MBO. MBO usually involves the following steps:
(1) Goal Setting: Goal setting under MBO is a multistage process. Goals are set in
three stages as given below:
a. First of all general and long term objectives are laid down for the organization as a
whole.
b. Within the framework of general and long term corporate objectives, specific and short
term goals are set up for every department or unit.
c. The last step in goal-setting is to fix performance targets for each and every individual
in the organization. Such targets should be fixed through a free and frank discussion
between the subordinates and superior so that both of them understand the results
expected and become fully committed to them.
(2) Developing Action Plans: Setting objectives is not enough and action plans must
be formulated for the achievement of the defined objectives. At this stage, details are worked
out for the accomplishment of performance targets.
(3) Implementing Plans: The action plans are put into operation so that individuals
can pursue their respective objectives.
(4) Periodic Reviews: Periodic meetings of superior and subordinates are held to
discuss the progress made towards goal accomplishment. Such reviews of performance
provide feedback on results to the subordinates. With the help of superior's suggestion and
assistance, the subordinates can take steps to improve the performance. The feedback serves
as the basis for corrective action.
(5) Appraising overall Performance: At the end of the year, the final performance is
evaluated against the targets. Such appraisal helps to assess the quality of performance and to
estimate the future potential. It also forms the basis for rewards and penalties. The final
review of performance is comprehensive. It also provides guidelines for goal setting in the
next period thereby completing the cyclical process of MBO.

(3) Modern Goal Formulation Process
In actual practice goal formulation is not as simple as mentioned by the traditionalists.
Organizational members and outside forces also influence over the goals, which the
organization pursues. Hence, two approaches/models of goal formulation will be examined
here to provide a clearer understanding of the basic processes involved. The first
model/approach by Thompson and McEwen (1958) deals with external forces affecting goal
formulation. The second, by Cyert and March (1963), deals principally with internal forces.
Thompson and McEwen Model
Organizational members and outside forces influence the goals of the organization.
Thompson and McEwen have suggested that the process of formulating goals can be
understood best by looking at the relationship between an organization and its external
environment.
The organization receives inputs from the environment, transforms these inputs, and
returns the outputs to the environment. Thus organization depends upon the environment for
its survival. According to this model, the managers of an organization formulate goals to
establish and maintain a favorable balance of power with the external environment. This
model states that goal formation is a function of power over external environment.
Thomson and McEwen suggest a continuum of organizational power in environmental
relations. It ranges from total organizational control over the environment to complete
environmental control over the organization as shown in figure 1.3. According to this
continuum, all organizations can be placed somewhere along this continuum, depending on
how much power they have in dealing with their environment. The more power the
organization has, the more autonomy it has in making decisions concerning future actions.

The amount of power an organization has largely determines what bargaining strategy
it should adopt to deal most successfully with its environment. Most organizations must
bargain with their environment to fulfill their goals. Choosing the proper method of
bargaining is vital to the success of the effort. Thompson and McEwen have identified four
bargaining strategies dealing with the environment.
Large multinational
Corporations Political Parties
Public utilities Grass root
Consumer
Small groups
Medium sized Business
Companies

Bargaining Competition Bargaining Co-optation Coalition
Strategy:

Figure 1.3: Power Continuum Between Organization and their
Environment (Thompson & McEwen, 1958)

Organization has
total control over
environment
Environment has
total control over
organization

(1) Competition: When an organization has a great deal of power in relation to its
environment, as in the case of a large multinational corporation, the model suggests that the
best strategy is one of competition with the environment. In other words the organization is
generally free to determine its own goals and pursue them with little concern for outside
factors. But as the forces in the external environment become more powerful, management
must shift its strategy towards increasing cooperation with the environment.
(2) Bargaining: The term bargaining refers to the negotiation of an agreement between
two or more parties for exchange. There is enough scope for a compromise before reaching
final agreement. In organizational context, this process may take place between organization
and several elements in the environment i.e. suppliers, creditors, trade unions, and so on.
Goals reflect consensus reached after negotiation with environmental elements.
(3) Co-optation: Co-optation is a process of absorbing new elements into the policy
making structure of an organization to free threats to its stability or existence. By this,
elements in environment are given important place in the policy making process of the
organization. For this reason, organizations appoint outside directors, employee directors, and
directors representing various interest groups. Through this process, they find mutually
agreed goals.
(4) Coalition: Coalition refers to combination of two or more individual, groups or
organizations for a common purpose. The goal of a coalition is to increase its bargaining
power through other groups.
They have pointed out that the relative bargaining position of an organization largely
determines the goal formulation. The more power an organization has, its management must
rely less on the input and controls the outside sources.
Cyert and March Model
Cyert and March principally focuses on the internal determinants of goals. According
to them many goals are compromises only. Goals are the results of a continuous bargaining-
learning process. Thus, actual goals come from a constant series of negotiations among
coalition groups. They view any organization is a coalition of groups and individual with
diverse needs desires, talents, and orientations. Coalitions are formed to have influence over
goals for security, prestige, and autonomy. In business organization, coalition members
include managers, employees, shareholders, customers, suppliers, etc. Each participant has
own preference order.
In this model, goal formulation is seen as function of three interrelated processes. The
first is a continual bargaining process within organizations. Owners bargain with employees
over relative share of profits. It is through bargaining and side payments potential members
enter into a coalition. Such side payments can take the forms of money, status, power or
authority, and position. Any conflicts between coalition members are usually settled through
this side payment system i.e. employee produce for wages and shareholders invest for
dividend.
Second, organizational goals are affected by the prior commitments, policies, and
agreements with others that have been made by an organization. These internal controls
constrain major changes in an organization's goals by limiting the resources of an
organization.

Finally, goals are sometimes modified when members of an organization agree to alter
them in response to change in the environment.
In all these three processes, the notion of organizational slack is inherent. According
to Cyert and March, slack consists of those payments to coalition members over and above
what is necessary to maintain an organization.
Points of Agreement on the Two Models
Comparing these two models of goal formulation shows a high degree of overlap and
their conclusions are in agreement. For example, most organizations have difficulty in
specifying their operational goals in detail. The two models taken together lead to the
conclusion that two of the most potent forces in the goal formulation process are relative
power distribution, both within an organization and between an organization and its
environment and organization's prior commitments.
Prior commitments by the organization also play a major role in determining and
modifying goals. These include a wide range of past decisions or obligations made on behalf
of an organization concerning plant capacity and investments in research and development.
Such commitments directly affect future decisions on allocation or distribution of available
resources. These can affect future goals almost without regard to relative power positions.
Hence, these two organizational goal formulation models ultimately rest on the concepts
of power and commitments.

E. GOAL SUCCESSION AND DISPLACEMENT
Every organization has goals. Changes occur almost inevitably in the goals that
organizations seek.
Goal Succession
Goal succession means adoption of new goals. When an original goal is modified
intentionally by the management, it is known as goal succession. Organizations incorporate
new or modified goals as soon as the existing goals are either achieved or discarded. Goal
succession can be made clear by this example. For example, Foundation for Infantile
Paralysis was established whose primary goal was to secure funding for research to eliminate
one specific childhood disease infantile paralysis. The foundation contributed to the virtual
eradication of the disease. It attainted its primary goal. But the result was a major crisis in
the organization, because its effort had eliminated its major purpose for existence. After
considerable thought the foundation shortened its name and revised its goals as funding
research for childhood diseases. This is an explicit example of intentional goal succession.
When an organization is faced with the problem like acute competition, declining sales,
shortage of funds, etc. may necessitate finding new goals for survival. Similarly
organizations may modify its existing goals in order to enhance the existing goals. For
example, organization had stated labor welfare as its goals, by extending housing, medical
and education facilities to its employees. With the passage to time, it was realized that this
goal has been achieved and therefore a new goal has to be constituted as 'workers
participation in management'. Such a change is goal succession. Goal succession may
happen in three specific conditions:

(1) Achievement of Goals: If the existing goals have been achieved and the
organization is left with no alternative it must adopt new goals for its continuous existence.
(2) Change in the Environment: In the context of changed environment or internal
circumstances, it is not desirable to pursue the existing goals, then the organization will have
to evolve new goals.
(3) Unachievable Goals: If the existing organizational goals are such that they cannot
be achieved, the organization has to modify or alter the goals.
The succession of goals is deliberate, intentional, and warranted by the circumstances.

Goal Displacement
Goal displacement may be stated as a situation in which new goals have been developed
by completely disregarding the official (strategic) or operative (tactical) goals. It is an
unintentional shift in organizational goals by management. Such displacement diverts
organizational energies or resources away from the original goals.
Generally, in goal displacement, the organization (i) substitutes its official/strategic
goals for some other goals; (ii) pursues a goal for which it was not established; (iii) pursues a
goal for which resources were not allocated to it; and (iv) seeks a goal which it is not known
to serve. Goal displacement can occur where the leaders put their personal goals ahead of
organizational goals. There are many reasons for goal displacement. Some of the important
reasons are mentioned below:
1. Abstract goals must be operationalized or translated into language specific enough to
allow employees to act and to measure results. The concrete decisions, plans and
actions that emerge from the original goals are often inconsistent to the original, abstract
aims of the organization.
2. A problem often arises when the final operational goals are delegated down through the
organization to employees to perform. Sills (1957) refers to the delegation process as
the ultimate source of displacement.
3. Uncertainty about the nature and implications of new goals can often result in increased
employee anxiety and insecurity. Hence, employees often prefer to follow past
practices. They are not necessarily goal oriented.
4. When employees think the control systems are excessively strict or unreasonable, they
may respond in a variety of non-productive ways. As a result goal progress is slowed.
5. The decisions and actions often emerge as commitments that become either goals in
themselves or constraints on the existing goals.

Figure 1.4: Reasons for Goal Succession
Achievement of
Goals
Changes in the
Environment
Unachievable
Goals
Goal Succession

6. Displacement may occur when the goals of the organization conflict with personal goals
and individuals choose to pursue the latter instead of the former.

F. IMPORTANCE OF ORGANIZATIONAL GOALS
Goals are important to organization due to following reasons:
(1) Legitimacy: The goals of an organization are the foundation for its existence.
Legitimacy of various organizational activities can be judged by looking at its goals,
which are influenced by the environment.
(2) Direction: Goals provide a clear vision of future. They provide course of action and
direction towards which the organization will tend to move. All organization decisions
will be guided by the goals.
(3) Standards of Performance: A goal provides a yardstick or benchmark with which
actual performance is to be compared. Thus, it acts as a standard of performance.
Organizational performance is to be judged with reference to the goals.
(4) Coordination: Goals keep activities on the right track.. They also help the managers to
coordinate various activities as all activities are directed towards the achievement of the
goals.
(5) Motivation: Goals are best motivators. The setting of goal lead to an increase in
performance because it makes clear to the individual what he is supposed to do.
Employees develop commitment towards the goals.

G. PROBLEMS OF GOAL FORMATION
While formulating goals, management must take care to recognize and mitigate the
problems of goal formation. The most significant problems are:
(1) Unattainable Goals: A common problem of goal formation is the establishment of
unattainable goals. Failure to achieve goals has a serious impact on the organization and on
the morale of its members. Failure is often perceived as an indicator of weakness. The
employee may be frustrated and give up without an effort to the unattainable goals. On the
other hand, organizations should not set easily attainable goals. Ideal goals are those that are
attainable or within the ability and reach of the organization. These goals should be
challenging to the employee, raise his aspirations, and foster individual growth.
(2) Inappropriate Goals: Perhaps the most persistent goal formation problem is the
tendency of organizations to set inappropriate goals. The first type of inappropriate goal is
the one that is in conflict with the organization mission. For example, if a firm has a strong
mission statement regarding its social responsibility to the general environment, its goal to
unload a defective product in a developing nation is obviously inappropriate. Goals that are
clearly inconsistent are also inappropriate for the organization. For example, if a firm has a
goal to develop a public image as producer of high quality, innovative products, and reduce
operating costs in the research and development is both inconsistent and inappropriate.

(3) Inappropriate Rewards: It is important that both goal formation and reward
system be compatible and consistent. The achievement of goal must be linked with reward.
Failure to reward the successful attainment of a goal renders the goal-reward relationship
ineffective. The reward must be perceived as consistent with the degree to which a goal was
achieved. For example, one sales manager increases sales by five percent and the other
increases sales by twelve percent, but both receive the same reward, the process becomes
inappropriate.
(4) Overemphasis on either Qualitative or Quantitative Goals: Another problem of
goal formation is to place an overemphasis on either qualitative or quantitative goals. Too
much emphasis is placed on qualitative goals when the concerned managers do not want to be
held responsible for specific levels of achievement. A manager might agree to try and reduce
labor turnover but resist being held responsible for reducing turnover by twenty percent.
Quantitative goals are preferred because their relative attainment is usually more easily
measured. They provide clear and precise benchmarks against which performance can be
measured. In critical areas such as cost control, sales, profits, etc. performance measurement
is necessarily quantitative. However, over reliance on quantitative measures may result in
shortsighted judgments that tend to ignore or downplay less tangible aspects of an individual
performance.

G. CHANGING PERSPECTIVES ON ORANIZATION
Perspectives on organizations are changing considerably over the period. The following
are the prominent views on organization, which have emerged in the twenty-first century.
(1) Mechanistic and Organic Organization
In the early part of the twentieth century, many organizations and managers were guided
by the principles of scientific management and bureaucracy. Workers were regarded as parts
of the organizational machine. This view has come to be known as mechanistic organization.
Mechanistic organization attempts to achieve peak production and maximum efficiency
through rules, standard operating procedures, centralized authority, and unambiguous chain of
command. However, overly rigid work rules, repetitive tasks, and loss of autonomy can lead
workers to be less productive.
The mechanistic organizations are still influential in modern organization. But modern
managers have learned that most jobs do not have "one best way" of being done. They have
learned that different workers have different work styles and empowering workers to make
decisions leads to high performance and high productivity. Thus, in direct contrast to the
mechanistic form of organization, organic organization has been widespread.
Organic organization is highly adaptive and flexible. Rather than having standardized
jobs and regulations, the organic organization is flexible which allows it to change rapidly as
needs require. This type of organization tends to be decentralized and communication flows
throughout the organization rather than through the chain of command. Employees are highly
trained empowered to handle diverse jobs and problems. Their high level of skills, training
and the support provided by other team members make formalization and tight managerial
control unnecessary.

(2) Organizational Designs
Managers in contemporary organizations are finding that traditional hierarchical design
often not appropriate for increasing dynamic and complex environments they face. In
response to marketplace demands, managers are finding creative ways to structure and
organize work and to make their organizations more responsive to the needs of customers,
employees, and other organizational constituents. Some of the contemporary concepts in
organizational design are as follows:
(a) Team-based structures: In a team based structure, the entire organization is made up
of work groups or teams. Employee empowerment is crucial in a team based structure
because there is no line of managerial authority from top to bottom. Employees are free
to design work in the way they think is best. The teams are also held responsible for all
work activity and performance results in their respective areas.
(b) Boundaryless organization: A boundaryless organization is an organizational design
in which the structure is not defined by, or limited to the boundaries imposed by
traditional structures. In this, vertical and horizontal boundaries are eliminated to break
down external barriers between the organization and its customers and suppliers.
Today's most successful organizations are finding that they can effectively operate by
remaining flexible and unstructured. Boundaryless organization seeks to eliminate the
chain of command, to have appropriate spans of control, and to replace departments
with empowered teams.
(3) Closed and Open System
Organization can be viewed from the system perspective. The two basic types of
systems are closed and open. Closed systems are not influenced by and do not interact with
their environment. They are most mechanical and have predetermined motions or activities
that must be performed regardless of the environment. A clock is an example of closed
system. In contrast open systems dynamically interact with their environment. In fact, the
environment determines whether or not the organization will live.
At present when we call organization system, it means open system, that is, an
organization constantly interacts with its environment. An organization takes inputs from the
environment, transforms into output that are again distributed into the environment. The
organization is open to its environment and continually interacts with that environment.
(4) Globalization
No organization can ignore the globalization of business. It is one of the major factors
affecting organizations and managers. The growth of regional free trade agreement and
world trade organization (WTO) presents a new set of challenges and opportunities for
organizations. Organizations are getting boderless. Free trade allows firms from anywhere in
the world to gain access to local markets. Manufacturing companies in particular, have
reduced costs by moving some of their production to areas where labor is plentiful and cheap.
Hence, globalization exerts continuous pressure on competing organizations to upgrade
quality, reduce costs, and or develop new or superior products in terms of customers' needs
and expectations. In terms of organizational survival, the biggest challenge is how to become
more competitive. Thus, managers will need to think globally and act locally.

(6) Increased Quality
A short widely accepted definition is "Quality is customer satisfaction." It is the degree
to which a specified product is preferred over competing products of equivalent grade. In the
age of globalization every organization must cope with continuous improvements in product
quality to be successful in the market place.
A major strategy for achieving high quality in organizations is total quality management
(TQM). TQM is the process of improving product quality continuously through all
organization members to satisfy customer needs. TQM provides the overall concept that
fosters continuous improvement in an organization. It stresses a systematic, integrated,
consistent, organization wide perspective involving everyone and everything. TQM has
become a necessity in the dynamic environment. It is the total integrated effort for gaining
competitive advantage through continuously improving every facet of an organization's
activities.
(7) Workforce Diversity
One of the major challenges facing organizations in the twenty-first century will be
coordinating work efforts of diverse organizational members. Today's organizations are
characterized by workforce diversity. A wide variety of factors such as globalization, an
aging population, an influx of females and minorities into new career, and knowledgeable
workers have created much more heterogeneous workforce. Therefore, organizations must
accommodate diverse groups of people by addressing different lifestyles, family needs, and
work styles.
(8) Organizational Change
The need for organizational change becomes apparent when managers sense that an
organization's activities, goals, or values are deficient in some way. The forces necessitating
organizational change can be found both inside and outside organizations. The external
forces for change are increasing and organizations must respond and adapt if they hope to
remain competitive in an increasingly turbulent global environment. In fact, as Tom Peters
noted, the very essence of the traditional business functions e.g. manufacturing marketing,
finance, management information systems (MIS) has changed dramatically in recent years
necessitating significant organizational change.
Organizations face more change today than ever before. During the last decade of
twentieth century organizations have encouraged three types of radical changes--downsizing,
empowerment and technology. Thus, organizations face the challenge of managing change in
twenty first century.
(9) Learning Organizations
Today, organizations confront an environment in which change takes place at an
unprecedented rate. As a result many of the past management guidelines and principles also
require change. Hence, successful organizations of the twenty first century must be able to
learn and respond quickly. These organizations manage the organization's knowledge base,
and make need changes. In other words, these organizations will need to be learning
organizations. A learning organization is one that had developed the capacity to continuously
learn, adapt, and change. Learning is a key ingredient in growing, becoming more effective
and socially responsible. Sharing knowledge, experience, and ideas becomes a habit in a

learning organization. Following table clarifies how a learning organization is different from
a traditional organization.

Learning Organization vs. Traditional Organization
Points of
Difference
Traditional
Organization
Learning
Organization
Attitude towards
change
If it is working, don't change it. If you aren't changing it won't be
working for long
Who's responsible
for innovation
Traditional areas such as R &
D
Everyone in organization.
Main fear Making mistakes Not learning, not adapting
Competitive
advantage
Product and service Ability to learn, knowledge and
experience
Manager's job Control others Enable others

IMPORTANT QUESTIONS
1. What is organization ? Explain the characteristics of organization.
2. What is an organizational goal ? Explain the various types of organizational goals.
3. Explain the purposes of organizational goals ?
4. Describe the importance of organizational goals to the organization.
5. Explain the features of effective organizational goals.
6. How goals are formulated in the organizations?
7. Describe MBO process of goal formulation in the organization.
8. Describe the external and internal forces that affect goal formulation of the organization.
9. What is goal succession and displacement? How goal succession occurs in the
organization ?
10. Describe the changing perspective of organization.
11. What are the characteristics of organization ? Explain different types of organization.




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Kul Narsingh Shrestha : Principles of Management / 1

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