Organizations: Purpose, Design, and Change

We have examined what organizations are, why they exist, the purpose of organizational theory, design, and change, and the different ways in which they can be evaluated. Organizations play a vital role in increasing the wealth of a society, and the purpose of managing organizational design and change is to enhance their ability to create value and
thus organizational effectiveness. Chapter 1 has made the following main points:

1. An organization is a tool that people use to coordinate their actions to obtain something they desire or value—to achieve their goals.

2. Organizations are value-creation systems that take inputs from the environment and use skills and knowledge to transform these inputs into finished goods and services.

3. The use of an organization allows people jointly to increase specialization and the division of labor, use large-scale technology, manage the organizational environment, economize on transaction costs, and exert power and control—all of which increase the value the organization can create.
4. Organizational theory is the study of how organizations function and how they affect and are affected by the environment in which they operate.
5. Organizational structure is the formal system of task and authority relationships that control how people coordinate their actions and use resources to achieve an organization’s goals.
6. Organizational culture is 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.
7. Organizational design is the process by which managers select and manage aspects of structure and culture so an organization can control the activities necessary to achieve its goals. Organizational design has important implications for a company’s competitive advantage, its ability to deal with contingencies and manage diversity, its efficiency, its ability to generate new goods and services, its control of the environment, its coordination and motivation of employees, and its development and implementation of strategy.

8. Organizational change is the process by which organizations redesign and transform their structures and cultures to move from their present state to some desired future state to increase their effectiveness. The goal of organizational change is to find new or improved ways of using resources and capabilities to increase an organization’s ability to create value and hence performance.
9. Managers can use three approaches to evaluate organizational effectiveness: the external resource approach, the internal systems approach, and the technical approach. Each approach is associated with a set of criteria that can be used to measure effectiveness and a set of organizational goals.

Discussion Questions

1. How do organizations create value? What is the role of entrepreneurship in this process?
2. What is the relationship among organizational theory, design, change, and organizational structure and culture?
3. What is organizational effectiveness? Discuss three approaches to evaluating effectiveness and the problems associated with each approach.
4. Draw up a list of effectiveness goals you would use to measure the performance of (a) a fast-food restaurant and (b) a school of business.

Practicing Organizational Theory

Open Systems Dynamics

Form groups of three to five people and discuss the following scenario:

Think of an organization you are all familiar with, such as a local restaurant, store, or bank. Once you have chosen an organization, model it from an open systems perspective. For example, identify its input, conversion, and output processes.

1. Identify the specific forces in the environment that have the greatest opportunity to help or hurt this organization’s ability to obtain resources and dispose of its goods or services.

2. Using the three views of effectiveness discussed in the chapter, discuss which specific measures are most useful to managers in evaluating this organization’s effectiveness.