Organizational Theory and Design

Organization theory and design

Class I

What is an organization?

An organization is a:

• Social entity goal-directed
  • Social because it is based on human resources, it is constructed around people and human resources, and the structure of the organization influences the behaviour of human resources as well as human resources have an impact on the structure of the organization
  • Goal-directed: to have an organization it is necessary to have goals, which is a target for the organization, and there are 2 types of them:
    • Mission, which:
      • Has to be considered as a general statement for the organization
      • Has to be easy to be remembered
      • It's stable once declared
    • Operative goals, which are numbers, matrix that:
      • Change from period to period
      • Shared by all the members of the organizations
      • Rationally determined
• Designed as deliberately structured and coordinated as an open system since it is supposed to interact with the environment
• Linked to the external environment for its survival and its prosperity

The organization as an open system

An organization has to be considered as a system, which is a group of elements, variables that are supposed to interact with each other, but a system doesn’t exist without considering the burden, the limitations of the system itself (so each system is supposed to have a burden). Open systems are supposed to interact with the external environment, so the interaction with the external elements is crucial for the survival and the prosperity of the organization itself.

We're going to consider organizations conceived as open systems, which doesn’t mean that there’s not a burden, there is a barrier which allows interactions with the elements outside the barrier of the organization, and outside the barrier there is the so-called external environment. The name of the elements positioned outside the barrier of the organization is environment.

• There are 2 types of environments:
  • General environment, which is valid for all the organizations and is represented by the general rules that affect the structure and the behaviour of all the organizations inside an ecosystem
  • Task environment, which is a specific environment for each organization, and it is represented by customers, suppliers and competitors

While all the organizations share the general environment, each organization is supposed to have its own specific task environment.

Class II

The importance of organizations

An organization has to be conceived as a social entity, which means that it is composed by human resources. We have to make a clear distinction between 2 types of organizations:

• Structured and formal organization
• Informal organization where the behaviour of the human resources addresses the informal part of the organization.

There are 2 types of organizations: a formalized and construct organization + an informal construct, which is given by the behaviour of the human resources. Our organization is a social entity, and it is goal-directed. Goals or targets are fundamental since they drive the structure and the fundamental and the behaviour of the system; they have to be clearly defined, shared and are rationally defined. We can have goals at different levels of the organization, so there are:

• Individual goals
• Group (or team) goals
• Corporate goals

At the same time, we have to take under control different levels of goals. The organizations we study are designed, are structured and coordinated, there are some elements that need to be coordinated otherwise the organization goes into crash. Lastly, it is important to keep in mind that the organization is interlinked with all the elements that are positioned outside the boundary of the organization itself, where there is the environment (composed by all the variables outside the boundary of the system of the organization).

As said before, there can be 2 types of organizations:

• Closed systems, which are:
  • Sealed off and are not disturbed by the external environment
  • The focus is mainly shifted on the internal structure (not interested in what happens outside the organization, but much more focused on the design, on the internal variables)
  • Self-contained and give minimal or no consideration to the external environment
• Open systems, means that:
  • They have a delimitation that allows interactions between internal and external variables, which are vital for the survival and the prosperity of the organization.
  • Organization as an open system because organizations are conceived as consumers and exporters of resources. In this sense, organizations are supposed to develop an internal design that allows the organization to deal with the external environment, so decision makers are supposed to find an internal structure that allows the organization to find out the effective alignment with the external environment.
  • Open systems are not sealed off, are not self-contained: they do care about what happens inside the external environment.

Early management studies (scientific management and other classical and neo-classical studies) considered organizations as open systems. Organizations are means to an end; they are managed because individuals are not able to reach some complex and articulated goals (so organizations have a sense because the individuals are not able to reach these complex and articulated goals).

The main features of organizations are:

• Organizations exist because they bring together resources, which are transformed inside the organization to achieve desired goals
• Produce goods and services efficiently
• Facilitate innovation
• Sometimes they use modern manufacturing and information technologies
• Adapt to and influence a rapidly changing environment (not so true, because this means that the organization has a sort of passive behavior): adapt means that the organization collects the stimuli coming from the outside and just aligns to these changes
• In this case it is better to say that the organization can also make the environment change it can have a proactive behavior on the environment
• Accommodate the challenges of diversity, sustainability (one of the greatest challenges in managing organizations), ethics and coordination
• Create values for owners, customers, employees (for all the stakeholders involved)

Performance and effectiveness outcomes

The organization must learn to be efficient - using the least amount of resources (human resources, raw materials, etc.), which are scarce by definition, to achieve its goals, as well as effective - the degree to which an organization actually achieves its mission and operative goals (effectiveness is the ability to target a goal). In doing this, the company must consider the needs of its different stakeholders who consist of any group within or outside the organization that has a stake in the organization’s performance, so decision makers are invited to find a sort of compromise.

We embrace the situational, or contingency, approach, that is to say that every factor of the organization can influence the other factors. It means that there is a mutual influence between factors, elements, and variables between the organization. This means that we don’t embrace the 1-way organization (1 way of organizing the system), but we assume that there are many types of organizations and organization has to be considered as unique.

The dimensions of the organizational design

What are the factors that we have to take into consideration to sketch an organization? There are 2 types of dimensions that need to be considered when we define the organizational design (structure): the structural dimensions and the contextual dimensions (or contingency factors), and there is a mutual interrelation between structural dimension and contextual dimension.

Structural Dimension

• Formalization: it refers to the amount of written documentation that supports the operativity of an organization
  • If it is high, it means that we have lots of codified procedures, norms and behaviours
  • If it is low, it means that the creativity and the innovation of the individual is appreciated

  We cannot say which is the best situation, so, in this case, the right answer is it depends because we have embraced the situational approach.

• Specialization: is the degree to which organizational tasks are subdivided into separate jobs, so in this case we can have extensive specialization, that happens when each human resource is in charge of performing only a very limited (narrow) range of tasks.
• Hierarchy of Authority: it refers to who reports to whom (it’s very easy to understand inside the organization the hierarchy of authority). Closely related to this, there is the definition of span of control, which refers to the number of individuals that refers to a supervisor
  • When the spans of control are narrow, it means that the specialization is high
  • When the spans of control are wide, it means that the specialization is low
• Complexity: it refers to the number of variables composing the system, and it is high when there is a great number of variables composing the system.
• Professionalism: it refers to the level of formal education of human resources composing the system.
• Personnel ratio: it refers to the deployment of human resources to different functions or organizational units (which criteria is used to address human resources to different organizational units).
• Centralization: it is about the definition, the identification of the hierarchical levels in charge of making strategic decisions
  • If centralization is high, it means that only the apex of the organization is able to make a decision
  • If centralization is low, it means that also other parts of the organization, rather than the apex of the organization can make strategic decisions

According to Mintzberg, each organization, conceived as a system, can be split into 5 subsystems to reduce complexity. These 5 subsystems are:

• Top Management: the apex of the organization, which is in charge of the definition of targets and strategies (plan for interacting with the external environment) – if centralization is high, only the top management can make strategic decisions
• Middle Management: its main duty is to capture the guidelines from the strategic apex (so it is in charge of receiving the instructions from the top management) and to translate the instructions received to the other parts of the organization; and it acts from the top to the bottom of the organization, but also the other way round, so in one direction it receives the instructions related to the strategy formulation, while in the other direction it transmits the information from the technical core to the top management (top – down and bottom – up communication)
• Technical Core: is in charge of the transformation of the inputs (raw materials) into outputs (products or services)
• Administrative Support Staff: is responsible for the smooth operations of the organization and of the upkeeping of the organization itself, so it is charged with making the life of the organization easier from an administrative point of view (it doesn’t make decisions)
• Technical Support Staff: is not related to the technology of the organization, but it’s that specific subsystem that detects the elements of the external environment for problems and opportunities, so its principal duty is to interact with the external environment (e.g. it is represented by the technology department, the research and development department as well as the marketing department)

Contextual dimension (or contingency factors)

• Size: is generally represented and described by the number of employees composing the organization.
• Organizational technology: when we use the word technology, we refer to tools, techniques and actions that are used to transform inputs into outputs.
• Environment
• Goals and strategy:
  • Goal: The organization has a mission (a clear statement) which is useful to address the internal and the external behaviour (useful to be recognized both externally and internally)
  • The operative goals are numbers, are matrix which are very useful to benchmark, to make a comparison between the targets defined at the beginning and the targets achieved. Operative goals are supposed to be S.M.A.R.T., which means that they have to be specific (clear), measurable (numbers), achievable, resources specific (to achieve a target the organization has to allocate some resources) and time specific (it is necessary to define a beginning and an end to each defined goal)
  • Strategy is the plan of action that the organization must follow to reach the defined goals
• Culture: it is unwritten, and it is given by all the values, beliefs and understandings that drive and address the organizational behaviour (is the behaviour that the employee is supposed inside the organization) of the employees, and they are shared by employees.

Uncertainty

Decision makers are supposed to fix lots of problems inside an organization, and these problems are related with different levels of uncertainty. The contingency factor that addresses the higher level of uncertainty is for sure the environment. Uncertainty manifests itself through specific problems which have to be faced and solved by decision makers:

• Structured problems: in this case the uncertainty has a very low degree of manifestation
  • Structured problems means that they can be solved with a pre-defined method, so they are standard, they are repetitive, they happen with a certain frequency, therefore we can formalise a specific methodology (an approach that can be used every time that a specific situation returns) to fix these kinds of problems
• Semi-structured problems are not completely structured, so to fix them we can have a methodology, but to find the proper answer we have to refer to behaviours that require innovation and creativity.
• Unstructured problems address the highest level of uncertainty; they are difficult to forecast, therefore, as a consequence, they are difficult to be faced (they are related to unexpected events). It’s not possible at all to use a formalized methodology, but we need to reinvent the solution from time to time depending on the nature of the problem.

Organization chart

The organization chart (organigramma) is useful to represent the formal structure of the organization. It is useful also to define in a clear and undoubtful way the line of authority; we dealt with hierarchy of authority and the graphical tool to capture the hierarchy of authority inside the organization is represented by the organizational chart, which tries to capture the formal structure of the organization. Beside the formal structure of the organization, we need to consider also the informal part of it.

Polymorphism is useful to stress the fact that, beside a formal structure of the organization, you always have an informal part of, and while the organizational chart is useful to capture the formal part, it is not possible to capture the informal part of the organization, which has to do with the features and the behaviours of the human resources.

A model for the process of strategic management

This is a model, so it’s a representation, of the process of strategic management, that tries to capture the different phases of strategic management (the strategy is core to the whole model). First of all, we must have clear in our mind the mission of the organization, which is a different concept from the vision of the organization (a tentative to describe the scenario of the organization in a future time), while the mission is just a statement, a phrase. Once defined the mission, in centralized organizations the mission is defined by the top management, we can retrieve the (operative) goals. The strategy is the plan of action, but before defining the strategy of the organization, we must have clear in our mind, the features of the other contingency factors.

The strategy of the organization is made of different features: first of all, we have to define the features of the external environment, which are essential to the definition of a proper strategy, where the environment can bring opportunities or threats; then we have to accomplish an internal analysis because we have to define the features of the culture dimension and specific phase of the life cycle and the features of the technology. Only when we have completed the analysis of these contingency factors, we can define the right strategy for the specific organization. When we have defined the strategy, we have to put it in connection with the Human Resource Management tools, techniques and management.