DENBEL COLLEGE

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MANAGEMENT

Organizational theory
Credit Hours: 3

By Adisu M (BA, MBA in Finance)

 Course Objective
 Upon completion of this course, students will be able to:
 Demonstrate knowledge of the principles of organization structure and
design.

 Develop skills for understanding the impact of environment on

organizational and inter organizational relationships.

 Demonstrate analytical skills in linking design/structure to performance.

 Develop awareness of the decision making model, hierarchies and

bureaucracy

 Demonstrate knowledge of various organization theories which enable

managers to understand, predict, and influence organizational
design/structure and development
 Chapter 1: Overview of Organization Theory
Organization theories in action
 Organization theory gives us the tools to analyze and
understand how a huge, powerful firm can emerge in the
industry.

 Do not ignore the external environment or protect the

organization from it. Because
The environment is unpredictable, do not expect to achieve
complete order and rationality within the organization.

Strive for a balance between order and flexibility

Organization theory helps us

Explain what happened in the past,

As well as what may happen in the future,

So that we can manage organizations more

effectively.
 Current Challenges
 The world is changing more rapidly than ever
before, and managers are responsible for
positioning their organizations to adapt to new
needs.
 Some specific challenges today’s managers and
organizations face are
 Globalization,
 Intense competition,
 Rigorous ethical scrutiny,
 The need for rapid response,
 The digital workplace, and
 Increasing diversity
 Historical Perspectives
Organizational design and management practices
have varied over time in response to changes in the
larger society
Classical Organization Theory

Neoclassical Theory

Modern Organization Theory

 Classical Organization Theory

Scientific Weber's
Management Bureaucratic Administra
Theory Theory tive theory
 Scientific Management Theory
 Introduced by Frederick W. Taylor to encourage
production efficiency and productivity.
 He postulates that decisions about organizations and
job design should be based on precise, scientific study
of individual situations.
 To use this approach, managers develop precise,
standard procedures for doing each job; select workers
with appropriate abilities; train workers in the
standard procedures; carefully plan work; and provide
wage incentives to increase output.
Concerned with knowing exactly what you want
men to do and then see in employers,

Stresses the control of the labour force by

management
 Principles of Scientific Management
1. The Creation of a scientific method of
measurement that replaces the “rule-of-thumb”

2. Emphasis placed on the training of workers by

management

3. Cooperation between manager and workers to

ensure the principles are being met

4. Equal division of labour between managers and

workers
 Weber's Bureaucratic Theory
 Weber's bureaucratic approach considers the organization as a
part of broader society.
 Concerned for the more fundamental issues of how
organizations are designed and structured
 Emphasized designing and managing organizations on an
impersonal, rational basis through elements such as clearly
defined authority and responsibility, formal record keeping,
and uniform application of standard rules.
 Bureaucracy: An exercise of control on the basis of
knowledge
 Administrative Theory
 Administrative theory was propounded by Henry Fayol

It is based on several principles of management

composed of five management functions :
Planning Organizing

Commanding

Controlling Coordinating
 Fayol’s 14 Principles of Management
1. Division of Work
2. Authority and Responsibility
3. Discipline
4. Unity of Command
5. Unity of Direction
6. Subordination of Individual Interest to General
Interest
7. Remuneration/ Compensation
8. Centralization
9. Scalar Chain

10.Order

11. Equity

12. Stability of Tenure

13. Initiative

14. Spirit of Cooperation

 Neoclassical Theory
This theory is also known as human relations
theory.
It recognized the importance of individual or group
behavior and emphasized human relations
Productivity increases were achieved as a result of
high morale,
Which was influenced by the amount of individual,
personal and intimate attention workers received.
 Neoclassical Approach Principles

The individual The work group

Participative management
The individual
Not a mechanical tool but a distinct social being,
with aspirations beyond mere fulfilment of a few
economic and security works.

Differ from each other in pursuing these desires.

Should be recognized as interacting with social and

economic factors.
The work group
The neoclassical approach highlighted the social
facets of work groups or informal organizations that
operate within a formal organization.

The concept of 'group' and its synergistic benefits

were considered important.
Participative management.
Participative management or decision making
permits workers to participate in the decision
making process.

This was a new form of management to ensure

increases in productivity.
 Note

The neoclassical
Taylor's 'scientific approach focuses on
management‘ focuses workers.
on work
 Modern Organization Theory
Tend to be based on the concept that the
organization is a system which has to adapt to
changes in its environment.

1. The systems & Socio-technical approach

Views organization as a system

composed of interconnected and
thus mutually dependent sub-
systems
 System Types

Open Closed
System System

a system that continually

interacts with the a system independent of the
environment around it environment around it

Sub-system- a system that is part of a larger system

 2. Socio-Technical Approach

considers the organization as composed of a social

system, technical system and its environment.

3. Quantitative approach

• uses scientific or mathematical data to understand a

problem
• uses quantitative approach to improve decision making
 Branches of Quantitative
approach

MIS
Management
Science
Operations
Management

4. Contingency or situational approach

there is no one set of ways to manage system of a company or

organization to lead
 Contingency theory factors
The size of the organization

How the firm adapts itself to its environment

Differences among resources and operations

activities
The chief characteristics of a system model
The system has three main parts: Input, process, and
output.

The nature of the central processes is prescribed by

the desired goals.

The environment places constrains on the system

because it determine what materials are available as
well as what happens to the finished product.
There must be a control mechanism which
measures the actual output against the desired
output, and corrects the deviations.

There are alternative processes in order to cope

(adapt) with variation (i.e., flexibility is required).
 What is an organizations?
Organizations are

1. Social entities that

2. are goal-directed
3. are designed as deliberately structured and
coordinated activity systems
• and

4. are linked to the external environment

 are made up of people and their relationships
organizations with one another

exists when people interact with one another

to perform essential functions that help attain
goals.

the importance of human resources

Recent trends in
management

with most new approaches designed to

recognize

empower employees
with greater opportunities to learn and
contribute as they work together toward
common goals
 Importance of Organizations
Organizations exist to do the following:
Bring together resources to achieve desired goals and
outcomes
Produce goods and services efficiently
Facilitate innovation
Use modern manufacturing and information technologies
Adapt to and influence a changing environment
Create value for owners, customers, and employees
Accommodate ongoing challenges of diversity, ethics, and the
motivation and coordination of employees
 Dimensions of organization design
Organizations shape our lives, and well-informed
managers can shape organizations.

The first step for understanding organizations is to

look at dimensions that describe specific
organizational design traits.
 The Organization

Goals and
Strategy
Size
Environment
Structure Technology
1. Formalization
Culture 2. Specialization
3. Hierarchy of
authority
4. Centralization
5. Professionalism
6. Personnel ratios
Interacting Contextual and Structural Dimensions of Organization Design
 Organizational dimensions fall into two types:
1. Structural 2. Contextual

 Provide labels to  Characterize the whole

describe the internal organization, including its
characteristics of an size, technology, environment,

organization. and goals.

 They describe the
 They create a basis for
organizational setting that
measuring and
influences and shapes the
comparing organizations structural dimensions
 Structural Dimensions
1. Formalization

Pertains to the Documentation includes

amount of procedures, job

. written descriptions, regulations,

documentation in and policy manuals.
the organization
 2. Specialization

The degree to which organizational tasks are

subdivided into separate jobs

If specialization is extensive, each employee

performs only a narrow range of tasks
.
If specialization is low, employees perform a wide
range of tasks in their jobs.

Sometimes referred to as the division of labor

3. Hierarchy of authority
Describes who reports to whom and
the span of control for each manager.
Depicted by the vertical lines on an
organization chart,
The hierarchy is related to span of control
(the number of employees reporting to a
supervisor).
When spans of control are narrow, the
hierarchy tends to be tall.
When spans of control are wide, the
hierarchy of authority will be shorter.
4. Centralization
The hierarchical level that has authority to
make a decision.

When decision making is kept at the top

level, the organization is centralized.

When decisions are delegated to lower

organizational levels, it is decentralized.
 5. Professionalism

The level of Considered high when

formal education employees require long
and training of periods of training to hold
employees jobs in the organization
6. Personnel ratios

The deployment of people to various functions

and departments.

Measured by dividing the number of

employees in a classification by the total
number of organizational employees.
 Contextual Dimensions
1. Size:
 Can be measured for the organization as a
whole or for specific components, such as a
plant or division.

2. Organizational technology:
 Refers to the tools, techniques, and actions
used to transform inputs into outputs
3. Environment:

 Includes all elements outside the boundary of

the organization.

The environmental elements that affect an

organization the most are often other
organizations
4. The organization’s goals and strategy:
 Define the purpose and competitive techniques that set it
apart from other organizations.

Goals are often written down as an enduring statement of

company intent.

A strategy is the plan of action that describes resource

allocation and activities for dealing with the environment
and for reaching the organization’s goals.

Goals and strategies define the scope of operations and the

relationship with employees, customers, and competitors.
5. An organization’s culture:
 is the underlying set of key values, beliefs,
understandings, and norms shared by employees.

These underlying values and norms may pertain to

ethical behavior, commitment to employees, efficiency,
or customer service, and they provide the glue to hold
organization members together.

An organization’s culture is unwritten but can be

observed in its stories, slogans, ceremonies, dress, and
office layout.
 Organizational Configuration
Henry Mintzberg suggests that every organization

has five parts.

Top Management

Technical
Administrative
Support
Staff
Middle Support Staff
Management

Technical Core
 Technical Core:
 The technical core includes people who do the
basic work of the organization.
 This part actually produces the product and
service outputs of the organization.
 This is where the primary transformation from
inputs to outputs takes place.
 Technical Support
 The technical support function helps the
organization adapt to the environment.
 Technical support employees scan the
environment for problems, opportunities, and
technological developments.
 Technical support is responsible for creating
innovations in the technical core, helping the
organization change and adapt.
 Administrative Support
The administrative support function is responsible for the
smooth operation and upkeep of the organization,
including its physical and human elements.
Management
 Management is a distinct function, responsible for
directing and coordinating other parts of the
organization.
 Top management provides direction, planning, strategy,
goals, and policies for the entire organization or major
divisions.
 Middle management is responsible for implementation
and coordination at the departmental level.
 Discussion Questions
1. What is the definition of organization? Briefly explain each
part of the definition.
2. Explain how Mintzberg’s five basic parts of the organization fit
together to perform needed functions.
3. What is the difference between formalization and
specialization? Do you think an organization high on one
dimension would also be high on the other? Discuss.
4. What does contingency mean? What are the implications of
contingency theory for managers?
5. Discuss about the criticism of organizational theories.
6. Discuss through detail about dimension of organization design.