1- Copyright 2007 Prentice Hall 1

Organizational Theory,
Design, and Change

Fifth Edition
Gareth R. Jones

Chapter 1

Organizations and
Organizational
Effectiveness
1- Copyright 2007 Prentice Hall 2
Learning Objectives
1. Explain why organizations exist and
the purposes they serve
2. Describe the relationship between
organizational theory and
organizational design and change,
and differentiate between
organizational structure and culture
1- Copyright 2007 Prentice Hall 3
Learning Objectives (cont.)
3. Understand how managers can utilize
the principles of organizational theory
to design and change their
organizations to increase organizational
effectiveness
4. Identify the three principal ways in
which managers assess and measure
organizational effectiveness
5. Appreciate the way in which several
contingency factors influence the
design of organizations
1- Copyright 2007 Prentice Hall 4
What is an Organization?
Organization: a tool used by people
to coordinate their actions to obtain
something they desire or value
Entrepreneurship: the process by
which people recognize opportunities
to satisfy needs, and then gather and
use resources to meet those needs
1- Copyright 2007 Prentice Hall 5
How Does an Organization
Create Value?
Value creation takes place at three
stages: input, conversion and output
Inputs: include human resources,
information and knowledge, raw
materials, money and capital
Conversion: the way the organization
uses human resources and technology to
transform inputs into outputs
Output: finished products and services
that the organization releases to its
environment
1- Copyright 2007 Prentice Hall 6
Figure 1 1: How An Organization
Creates Value
1- Copyright 2007 Prentice Hall 7
Why Do Organizations Exist?
To increase specialization and the
division of labor
To use large-scale technology
Economies of scale: cost savings that
result when goods and services are
produced in large volume
Economies of scope: cost savings that
result when an organization is able to use
underutilized resources more effectively
because they can be shared across
several different products or tasks
1- Copyright 2007 Prentice Hall 8
Why Do Organizations Exist?
(cont.)
To manage the external environment
Pressures from the external environment
make organizations the favored mode for
organizing productive resources
To economize on transaction costs
Transaction costs: the costs associated
with negotiating, monitoring, and
governing exchanges between people
who must cooperate
To exert power and control
1- Copyright 2007 Prentice Hall 9
Figure 1-3: Why organizations
exist
1- Copyright 2007 Prentice Hall 10
Organizational Theory, Design, and
Change: Some Definitions
Organizational theory: the study of
how organizations function and how
they affect and are affected by the
environment in which they operate
Organizational structure: the formal
system of task and authority
relationships that control how people
coordinate their actions and use
resources to achieve organizational goals
1- Copyright 2007 Prentice Hall 11
Some Definitions (cont.)
Organizational culture: the set of
shared values and norms that control
organizational members interactions
with each other and with suppliers,
customers, and other people outside the
organization
Organizational design: 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
1- Copyright 2007 Prentice Hall 12
Some Definitions (cont.)
Organizational change: the process
by which organizations move from
their present state to some desired
future state to increase their
effectiveness
1- Copyright 2007 Prentice Hall 13
Figure 1-4: Relationships Among
Organizational Theory, Structure, Culture,
Design and Change
1- Copyright 2007 Prentice Hall 14
Importance of Organizational
Design and Change
Dealing with contingencies
Contingencies are events that might occur
and must be planned for
Gaining competitive advantage
The ability to outperform other companies
because of the capacity to create more
value from resources
Core competences: skills and abilities in
value creation
Strategy: pattern of decisions and
actions involving core competences that
produces a competitive advantage
1- Copyright 2007 Prentice Hall 15
Importance of Organizational
Design and Change (cont.)
Managing diversity
Differences in the race, gender, and
national origin of organizational members
have important implications for
organizational culture and effectiveness
Promoting efficiency, speed, and
innovation
The better organizations function, the
more value they create

1- Copyright 2007 Prentice Hall 16
Consequences of Poor
Organizational Design
Decline of the organization
Talented employees leave to take
positions in growing organizations
Resources become harder to acquire
Resulting crisis impels managers to
change organizational structure and
culture
1- Copyright 2007 Prentice Hall 17
How Do Managers Measure
Organizational Effectiveness?
Control: external resource approach
Method evaluates how effectively an
organization manages and controls its external
environment
Innovation: internal system approach
Method allows managers to evaluate how
effectively an organization functions and
operates
Efficiency: technical approach
Method evaluates how efficiently an
organization converts a fixed amount of
resources into finished goods and services
1- Copyright 2007 Prentice Hall 18
Table 1-1: Approaches to
Measuring Effectiveness
1- Copyright 2007 Prentice Hall 19
Measuring Effectiveness:
Organizational Goals
Official goals: guiding principles that
the organization formally states in its
annual report and in other public
documents
Mission: goals that explain why the
organization exists and what it should
be doing
Operative goals: specific long- and
short-term goals that guide managers
and employees as they perform the
work of the organization
1- Copyright 2007 Prentice Hall 20
Figure 1-5: Plan of the Book
1- Copyright 2007 Prentice Hall 21
Figure 1-5: Plan of the Book
(cont.)
1- Copyright 2007 Prentice Hall 22
Figure 1-5: Plan of the Book
(cont.)