Organisation Flashcards
Why Is There Any Organisation? (Ronald Coase)
Organisations exist because there is a cost to “organising” through the price mechanism. These are the costs that have nothing to do with the production itself, the so-called transaction costs.
Transaction costs include:
- search costs: discovering the relevant price
- bargaining costs: negotiating, making separate contracts
- enforcement costs: policing so that work is done the way expected
Firms will arise because they can find a way to produce what they need internally and avoid these transaction costs.
- the reason why there is not one giant organisation is that there is a limit to what can be produced internally, leading to a decreasing return to the entrepreneurship function
- the size of the firm is the result of finding the optimal balance between internal and external contractual relation
Outsourcing or Integrating (Oliver Williamson)
Focused on whether the resources and capabilities in the firm can do the activities better, or the market do better.
Outsourcing: a process by which activities previously carried out internally are subcontracted to external suppliers on the market
Integrating: a process by which activities previously carried out by suppliers or consumers on the market are incorporated into the firm
The decision to integrate or outsource depends on the relative sources and capabilities, and the risk of opportunism.
- opportunism: the notion that market players will use smart tricks to pursue their self-interest
- market relationships fail when certain factors characterise these relationships:
1. there are few alternative market players that can do the activity
2. the activity is complex and changing
3. the activity is asset-specific
The Goal Of An Organisation
Potential Organisational Goals:
- maximise profits
- create value
- grow
- enhance volume turnover
- increase cost efficiency
- department goal
Nature Of Goals
The popular notion is that business firms should possess some superordinate goal, the maximisation of profit.
Miller and Dess: goals are linked to vision, mission, and objectives hierarchically arranged
1. vision: future orientation of the organisation
2. mission: statement of the key values
3. goals: more specific statements of intent than the mission
4. objectives: the operationalisation of the goals
How Are Goals Developed?
Classic view: The entrepreneur or the top of the managerial hierarchy sets the goals and the other organisational members should then conform to the goal because they got something in return (e.g. wages). No conflict about what the goal should be.
This is not satisfactory in the real world as organisational goals are often not made by an individual entrepreneur and there is usually only agreement on very vague goals.
Economist view: context is knowable
- actions can be linked with some confidence to consequences
Knowable: Economic man
- one best solution
- having clear and constant preferences
- complete information
- maximising outcome
- all-encompassing rationality
Not so Knowable: Economic man 2.0
- many solutions
- the real world is “buzzing, blooming, confusion”
- incomplete information
- satisficing outcome
- bounded rationality
Bounded rationality refers to the notion that decision-makers aim to be rational but their ability to do so is limited.
Behavioural View (Cyert & March)
Behavioural view: organisations cannot set goals, but individuals do
- if we want to understand the organisational goals, we must understand how individuals set goals
- acknowledges the human process that goes into setting organisational goals
The Goal Formation Process:
1. Bargaining process
- interest groups aim to form coalitions
- composition and general terms of the coalition are fixed
2. Internal organisation process of control
- goals are stabilised and elaborated
- different coalitions agree on a goal that they can all accept
- the coalition partners for the time being accepting their differences as they believe that this is the best they can get in the current organisational context
3. Process of Adjustment to Experience
- coalition agreements are altered in response to changes in context
- the dynamics may change on the basis of input from the environment or changes to the systems
- a pending change can put a resolution of conflict at play
The behavioural view on goal setting presents several ideas:
- interest groups can unite behind an abstract goal
- most groups will unite behind top management goal
- many organisational subgoals exist
- interest groups bargain/compete for more concrete sub-goals
- coalition finds a quasi-resolution for conflict among interest groups
- sub-goals can emerge that conflict with organisational goal
- to survive, organisations need to change goals in the face of external and internal changes
The behavioural view of goal setting emphasises power and politics. The power of interest groups may have different sources: position in hierarchy, skills of group members, resources they have control over, and legitimacy of their role.
Organisational politics refers to the process and different activities that are undertaken to attain their own interests.
- in the political arena of organisations, there will be some competition among interest groups in determining organisational goals
- this process then leads to a temporary agreement on the organisational goal
Multiple Goals
In any organisation made up from different interest groups, some conflict over goals is inevitable. And it is normal for many goals to exist in most organisations. Conflict can be limited by four factors:
- most groups in an organisation will agree to those formulated by senior managers as a means of achieving their own goals
- most organisation members would appear to accept the goals of top management with little question
- the dominant coalition normally sets up controls to ensure compliance to their goals
- in many firms, senior manager acknowledge that different groups may have their own goals which need to be satisfied
Organisation Structure
Group of activities an people to achieve the goals of the organisation.
Organisation aims to manage their organisational challenges by improving:
- managerial skills
- technological innovation
- structural changes
Choices that lie at the heart of structure:
1. the nature of hierarchy (tall or flat)
2. degree of specialisation
3. the type of grouping, deciding which tasks should be placed together
4. rules, schedules, and systems
Factors That Influence Structure
The biggest change Chandler discovered was the shift from functional to multidivisional structures as a consequence of changing strategies. He argued that the relationship between structure and strategy is complex.
- structure did not automatically follow strategy and management often needed a crisis before they would agree to structural change
- viewed the relation between strategy and structure as dynamic and evolutionary
Stages in the development of US capitalism
- growth of mass markets and development of the techniques of mass production are accompanied by vertical integration (ensure the supply and distribution) and horizontal integration (takeover to maintain growth)
- expansion brought problems of coordination and control and subsequent inefficiency
- as markets became saturated and the benefits of accruing from organisational restructuring slowed down, new markets and products were pursued by overseas expansion
Other influences on the structure:
- technology
- size
- changes in the environment
- culture
- interest groups
Multidivisional Company
Comprises a number of business units which may pursue markedly different types of business activity.
- the creation of product divisions was a function of increasing product diversity in foreign markets, while geographical division resulted as foreign sales grew in proportion to total sales
How Do Organisations Organise?
When organisations grow, there can be spatial distribution and dissimilarity in transactions that increase the cost of organising and the likelihood of managers making mistakes.
Some of these challenges can be overcome by smartly organising or restructuring
- e.g. by focusing on select functions or on a select location
There are many elements that organisations can consider in terms of structural choices:
1. hierarchy
2. integration vs differentiation
3. coordination and control
4. reward
5. boundary spanning
Decentralisation
- delegating responsibilities can be beneficial, as it reduces information load and enables managers to focus on strategic issues
- empowers and motivates the low-level managers
- however, centralisation allows for easier coordination of activities
Within an organisation, there can be communication problems, measurement problems (monitoring people’s performance), customer problems (structure limits the response to the customer needs), and location problems. When problems like this emerge, the structural costs rise, which can be changed by adopting a different kind of organisational structure.
Types of Organisational Structure
As organisations grow, they adopt various structures.
- Simple Structure
- the founder manages everything
- initial stages - Functional Structure
- departments specialise by function
- growth phase - Divisional Structure
- organised by product or market
- diversification phase - Matrix Structure
- multiple reporting lines for flexibility and innovation - Adhocracy
- project-based, flexible teams - Virtual organisation
- technology-driven
- decentralised collaboration
Simple Structure
- the owner is also the manager and does a lot of different tasks for himself.
- many firms start with this as it is very flexible
- decisions can be made quickly
- leadership crisis as the firm grows and increases in difficulty for the owner to do everything
Functional Structure
- introduces departments where different managers take over various functions and responsibilities from the owner so that the owner can refocus on the strategic issues
- a broad set of targets is divided and coordinated by managers
- every position can have its unique coordination mechanisms
- autonomy crisis: a situation where different functional departments become overly focused on their own goals, expertise, and operations
Matrix Structure
- combines different criteria for departmentalisation (mostly function and product)
- employees have more than one boss
- employees have transferable skills and can work in different areas
- pros: more flexibility, more productivity, higher morale, more creativity and innovation, personal development of team members
- cons: chain of command conflicts, poor communication, unclear responsibilities, undefined individual roles
Multidivision Structure
- when the firm becomes too diverse for central coordination based upon a functional departmentalisation
- the divisions are profit centres, and the central departments remain
- leads to coordination problems and/or redundancy
- often a power struggle over central units
The Flexible Organisation (Adhocracy)
- organisation of people or units bonded together only for a specific temporary purpose
- members are grouped together on an ad hoc basis (need-based) based on the skills needed and the resources available
- exploits the advantages of diversity, experience and synergy of teams
- allows decisions to be made at the lowest level possible
The McKinsey 7-Ss
Framework for organisational design and management.
- highlights 7 key elements that must be aligned for an organisation to be effective
- elements are interdependent
- Strategy
- plan an organisation follows to achieve its long-term goals - Structure
- the way the organisation is arranged
- determines how tasks and responsibilities are distributed and coordinated - Systems
- processes and the procedures that govern day-to-day activities within the organisation - Shared Values
- the core beliefs, principles and cultural norms that guide behaviour in the organisation - Style
- leadership approach and management style within the organisation - Staff
- people in the organisation, including their skills, capabilities, and overall composition - Skills
- the competencies and capabilities that employees possess
How Organisations Organise
Organisations structure themselves in ways that reflect their culture, values, and the objectives they wish to achieve.
How an organisation organises itself depends largely on the culture it adopts, as well as how power, roles, and responsibilities are distributed.
This organisation structure determines how communication flows, how decisions are made, and how employees interact with each other.
Another Ultimate Goal
Another ultimate goal of an organisation is to become an institution.
- Star and 7S models do not get to the point of becoming a superfit
This comes when an organisation becomes an institution.
- an organisation becomes an institution when it becomes an important and indispensable part of the environment
The Virtual Organisation
- a form of adhocracy
- extensive use of information systems and electronic ties to create an extremely flexible organisation
- all parts of the company are connected by formal and informal communication
- forms units of members from geographically diverse areas
- members may never meet face to face, but rather their structure is networked
- extensible collaboration takes place electronically
- technical support forms are critical
- maintains the small core of essential functions and then outsources all non-essential tasks
Schein’s Onion Model of Organisational Culture
The Onion Model shows that organisational culture has several layers, and to understand the culture fully, one must examine these layers. Each layer represents a different aspect of the organisation’s culture, with the outer layers being more superficial and the inner layers representing core values and assumptions.
- Outer layer: artifacts
- tangible and visible elements of the organisation
- the way employees dress, office design, company logo etc - Second layer: values
- stated or implicit beliefs, norms, and goals that guide behaviour within the organisation
- company might promote values such as teamwork, innovation, or customer service excellence - Third layer: norms
- informal expectations or unwritten rules that govern behaviour within the organisation
- unspoken rules about working hours, how decisions are made, how employees communicate with one another, how conflict is handled - Core layer: basic assumptions
- deepest and most fundamental layer of culture
- core beliefs and assumptions that are taken for granted by the members of the organisation
- nature of work, relationship
Handy’s Four Types of Organisational Culture
Categorises organisations based on their culture and how they approach leadership and decision-making.
- Power Culture
- centralised power with a single individual or small group making key decisions
- informal and flexible, with few rules or procedures
- decisions are made quickly - Task Culture
- focuses on achieving specific goals and tasks through teamwork and expertise
- task-oriented, flexibility in teams working on projects - Role Culture
- structured, clearly defined roles and responsibilities
- bureaucratic, rigid hierarchies and formal processes
- focus on stability and consistency - Person Culture
- emphasis on individual autonomy and self-direction
- found in professional organisations with a flat structure
- individuals are seen as the central focus of the organisation, and the organisation exists to serve them
- encourages individual development and personal freedom
Peters and Waterman’s Strong Culture and Excellence
Identified key factors that contributed to the success of top-performing companies.
2 main ideas, strong culture and excellence are central to their analysis of organisational success and growth.
- Strong Culture
- shared values and beliefs
- consistency and alignment
- decisions are often made based on what is best for the organisation’s culture and values
- strengthened by rituals
- emphasised in communication - Excellence
- focus on customers
- continuous improvement
- decentralised decision making
- flexibility and innovation
- loose & tight
- simple structure, lean staff
