Organization Theory and Design

LECTURE 1 & 2
OTD & other closely-related discipline

OT OB
Theoretical Organization Theory Organizational Behavior

OD HRM
Applied Organization Human Resource
Development Management

Macro Micro

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 Outline
• What is an organisation
• Importance of organisations
• Organisation design – what and why
• Dimensions of organisational design
• Organisation theory – what and why
• Historical perspectives
• Organisational strategies
• Contemporary organisation design
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 What is an Organisation?
• Organisations are social entities that are goal
directed, are designed as deliberately
structured and coordinated activity systems,
and are linked to external environment.”
• “Organisations are made up of people and
their relationships with one another.”

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 Importance of Organisations
• Bring together resources to achieve desired goals and
outcomes.
• Produce goods and services efficiently.
• Facilitate innovation.
• Use of 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,
social responsibility, and the motivation and
coordination of employees.
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 Perspectives on Organisations
Two views of organisations:
• Open Systems
– Early organisation studies focused on closed
internal systems, based on assumptions that
environment is stable and predictable.
• Organisational Configuration
– Balance the five basic parts of an organisation to
perform the subsystem functions effectively.

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 Closed Systems
– It would not depend on its environment;
– It would be autonomous, enclosed, and sealed off from the
outside world.
– Although a true closed system cannot exist, early organization
studies focused on internal systems.
– Early management concepts, including scientific
management, leadership styles, and industrial engineering,
were closed-system approaches because they took the
environment for granted and assumed the organization could
be made more effective through internal design.
– The management of a closed system would be quite easy.
– The environment would be stable and predictable and would
not intervene to cause problems.
– The primary management issue would be to run things
efficiently.
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 Open Systems
– It must interacts with and adapts to the
environment by consuming resources and
exporting product and services to it.
– Issues involved are more complex due to
interdependence of various elements.

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 System vs. Sub-Systems
• To understand the whole organization, it
should be viewed as a system.
• A System is a set of interacting elements
(people and departments) that acquires input
from the environment, transform them, and
discharges outputs to the external
environment.
– The need for inputs and outputs reflects
dependency on the environment.
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 System vs. Sub-Systems (cont’d…)
• A system is made up of several Subsystems, as
illustrated at the bottom of the next diagram.
• These subsystems perform the specific functions
required for organizational survival, such as
production, boundary spanning, maintenance,
adaptation, and management.
– Boundary subsystems are responsible for exchanges
with the external environment; include activities viz.
purchasing supplies, or marketing products.

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 An Open System and its Subsystems

Environment

People
Raw
materials Products
Information Transformation and
Financial Input Output Services
Process
resources

Boundary Production, maintenance, Boundary

SUBSYSTEMS spanning adoption, management spanning

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 Organisational Configuration
• Technical Core
– Includes people who do the basic work.
• Technical Support
– Helps the organization adapt to the environment.
• Administrative Support
– Responsible for smooth operation and upkeep.
• Management
– Top Management – provides direction, strategy, goals and
policies.
– Middle Management – implementation and coordination.

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 Five Basic Parts of an Organisation
Top
Management

Technical Middle Administrative

Support Management Support

Technical Core

Source: Based on Henry Mintzberg, The Structuring of Organizations (Englewood

Cliffs, N. J.: Prentice-Hall, 1979) 215-297; and

Henry Mintzberg, “Organization Design: Fashion or Fit?” Harvard Business Review

59 (Jan. – Feb. 1981): 103-116.
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 Organisation Design

• Emphasies the management side of

organisation theory
• Concerned with constructing and changing an
organisation’s structure and traits to achieve
the organisation’s goals

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 Dimensions of Organisation Design

Organisation traits are described by:

• Structural Dimensions
– Describes internal characteristics of an
organisation.
• Contextual Dimensions
– Characterises the whole organisation, including its
size, technology, environment and goals.

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 Structural Dimensions
• Formalisation
– The amount of written documentation.
• Specialisation
– The degree to which organisational tasks are subdivided
into separate jobs.
• Hierarchy of Authority
– Span of control of the managers.
• Centralisation
– Hierarchical level of authority for decision making.
• Professionalism
– Level of formal education and training of employees.
• Personnel ratios
– People deployed to each functions and departments.
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 Contextual Dimensions
• Size
– Number of employees.
• Organisational Technology
– Tools, techniques and actions used to transform inputs
into outputs.
• Goals and Strategy
– Purpose and competitive techniques that set it apart from
other organisations.
• Environment
– All elements outside the organisational boundary.
• Culture
– Shared key values, beliefs, understandings and norms.

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 Interacting Contextual and Structural Dimensions

Goals and
Strategy
Environment Size

Culture Technology
Structure
1. Formalization
2. Specialization
3. Hierarchy of Authority
4. Centralization
5. Professionalism
6. Personnel Ratios

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 Organisation Theory
• Discipline that studies the structure and design of
organisations
• Organisation theories are interdisciplinary, based on
knowledge from the fields of psychology, political
science, economics, anthropology and sociology
• Organisation theory is a macro examination of
organisations – analyses the whole organisation as a
unit; while organisation behaviour is the micro
approach to organisations – focuses on the
individuals within organisation

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 Organisation Challenges
• Globalisation
• Ethics and Social Responsibility
• Speed of Responsiveness
• The Digital Workplace
• Diversity

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 Classical Theories
Efficiency is Everything
• Fredrick Winslow Taylor
– Scientific management approach
– “Managers develop precise, standard procedures for doing
each job, select workers with appropriate abilities, train
workers in standard procedures, carefully plan work, and
provide wage incentives to increase output.”
– “The role of management is to maintain stability and
efficiency.”
• Thinking (top managers)
• Working (workers doing what they are told)
– Focused on the technical core.

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 Classical Theories
How to Get Organised
• Max Weber
– Bureaucratic approach
– Clear division of labour
– Hierarchical structure in the organisation
– Predictability and stability
– Rationality
– Impersonal relationship
– Characteristics for most of today’s large
organisations

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 Classical Theories
How to Get Organised
• Henri Fayol
– Administrative principles
– Concerned with the problems of management
– Develop general principles applicable to all managers and
describe the functions a manager should perform
– 14 principles in total – division of work, authority,
discipline, unity of command, unity of direction,
subordination of individual interests to the general
interests, remuneration, centralisation, scalar chain, order,
equity, stability of tenure of personnel, initiative, Esprit de
corps

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 Human-Relations Theories
What About People?
• Elton Mayo, Chester Bernard, Douglas Mc Gregor
• Hawthrone Studies
– Work on industrial psychology and human relations.
– Chicago Western Electric Company
– “Positive treatment of employees improved their
motivation and productivity.”
– Laid the groundwork for subsequent work examining
worker treatment, leadership, motivation and HR
management.
– Human relations and behavioural approaches

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 Contingency Theory
Don’t Forget the Environment
• All organisations are not alike.
– The scientific management and administrative principles
approaches attempted to design all organisation in the
same manner.
• Contingency Theory – there is no one best way for
organisation design
• “Contingency means that one thing depends on
other things, and for organisations to be effective,
there must be a goodness of fit between their
structure and conditions in their external
environment.”
• Contingency means it depends.
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 Organisational Strategies
• Defined as the determination of the basic
long-term goals and objectives of an
enterprise, and the adoption of courses of
action and the allocation of resources
necessary for carrying out these goals
• Two models
– Porter model
– Miles and Snow model

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 Porter’s Competitive Strategies
• No firm can successfully perform at an above-
average level by trying to be all things to all
people
– Low-cost leadership
– Differentiation
– Focus

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 Miles and Snow’s Strategies
• Classify organisations into one of four
strategic types based on the rate at which
they change their products or markets
– Defenders
– Prospectors
– Analysers
– Reactors

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Contingency Factors Affecting Organisation
Design
Envir Size/
onme Life C
n t Technology ycle
Cul
tur
y e
a t eg
St r

Organizational Structure and Design

The Right Mix of Design Characteristics Fits the Contingency Factors

06/20/24 Source: “Organization Theory and Design”, Richard L. Daft 29

 Discussions
• Discuss how the following organisational
strategies affect organisation design
– Low-cost leadership
– Differentiation
– Defenders
– Prospectors
– Analysers
– Reactors

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 Contemporary Organisation Design Learning
Organisations
• Organisations today need greater fluidity and adaptability.
• The learning organisation promotes use of communication
and collaboration technologies, so that everyone is engaged
in identifying and solving problems.
• All organisation members continuously help to experiment,
improve and increase its capability.
• “It is based on equality, open information, little hierarchy, and
a culture that encourages adaptability and participation.”
• Essential value is problem solving as opposed to efficient
performance.

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 Two Organisation Design Approaches

Mechanical System Design Natural System Design

Vertical Horizontal
Structure Structure

Routine Rigid Organizational Change Empowered Adaptive

Tasks Culture in the Service of Roles Culture
Performance

Formal Competitive Shared Collaborative

Systems Strategy Information Strategy

Stable Environment Turbulent Environment

Efficient Performance Learning Organization

The slide adapted from David K. Hurst, Crisis and Renewal: Meeting the Challenge of Organizational Change (Harvard Business School)

Original source : “Organization Theory and Design”, Richard L. Daft

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 Vertical to Horizontal Structure
• Traditionally the activities were grouped together by
common work from bottom to the top of the
organisation, little collaboration occurs across
functional departments.
• In a fast changing environment the vertical structure
becomes overloaded.
• In the learning organisation, structure is created
around horizontal workflows or processes rather
than departmental functions.
• “Self-directed teams are the fundamental work unit
in the learning organisation.”
• Boundaries between functions are eliminated.
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 Routine Tasks to
Empowered Roles
• The scientific management precisely define each job and
how it should be done.
• “In traditional organisations, tasks are broken down into
specialized, separate parts, as in a machine. Knowledge
and control of tasks are centralized.”
• In learning organisations, employees are assigned roles –
with discretion and responsibility - in the team or
department which are continuously redefined or
adjusted.
• Employees are encouraged to take care of problems by
working with each other and with customers.

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 Formal Control to
Shared Information
• “Formal systems are often implemented to manage the
growing amount of complex information and to detect
deviations from established standard and goals.”
• In the learning organisation ideas and information are
shared throughout the organisation.
• Managers find ways to open channels of communication
so that ideas flow freely in all directions.
• Learning organisations communicate with customers,
suppliers, and even competitors to enhance learning
capability.

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 Competitive to
Collaborative Strategy
• Strategy in traditional organisations is formulated by
top managers and imposed on the organisation.
• In the learning organisations the accumulated
actions of an informed and empowered workforce
contribute to strategy development.
• Partnerships with suppliers, customers and
competitors to find the best way to learn and adapt,
forming modular or virtual organisations that are
connected electronically.

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 Rigid to Adaptive Culture
• Organisations should continuously adapt to external
environment.
• In a learning organisation, employees are aware of
the whole system and interactions of its parts and
the culture encourage openness, equality, continues
improvement and change.
• “Each employee is a valued contributor and the
organisation becomes a place for creating a web of
relationships that allows people to develop their full
potential.”

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 Quiz # 1

Quiz # 1 of this semester shall be

from this Lecture

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