Historical Development of Organizational Theory

1. Historical Development of Organizational Theory Rational System Approach Natural System Approach Organizations are created to pursue clearly defined goals through reasoned, conscious effort within logical structures and through functional operations management. Organizations are organisms that seek first to survive and whose human members sometimes make decisions that are contrary to organizational goals. (Managerialism) (Conflict)

2. Managerial (Rational System) View of Organizations • Analysis of organizations from an upper management perspective • Organizations are technical systems that are comprised of components that can be manipulated • The organizational correlate to societal level functional theory • Whereas Durkheimian functional theory emphasizes how society as a whole adapts to achieve harmony, managerial approaches to organizations focus attention on how organizations change in order to achieve efficiency or maximize profits

3. Conflict (Natural System) View of Organizations • Alternatively highlights that organizations are comprised of heterogeneous social (status) groups • Emphasis on power and politics • conflict among workers and managers, different functional departments and other social groups • From a conflict perspective, upper management comprises a status group that seeks to “feather their nest” • Managers in organizations do not seek to maximize performance or efficiency, but aim to keep the organization alive in order to maintain their positions of power

4. Rational & Natural Systems • Over the next couple of lectures, we will focus on the rational systems/managerial perspective • Classical Organizational Theory (Weber, Taylor) • Neoclassical Organizational Theory (Human Relations tradition—Hawthorne studies, McGregor) • Contingency approach (late 1960s-present) • In week 10 (Informal Organization and Control), we will move to the natural systems perspective

5. Weber’s Rational Bureaucracy 1. Functional specialization Features of Rational Bureaucracy 2. Hierarchical authority 3. Expert and professional managers 4. Rule-based decision making

6. Scientific Management/Taylorism • Frederick Taylor (engineer) • “Machine Model” of Management • Reduce craft knowledge of how to perform tasks into a set of rules, laws and formulas (leave no scope for worker judgment) • To do this, managers watch how workers perform particular tasks very closely (use of time & motion studies) to figure out the most efficient way

7. Results of Scientific Management • Productivity increased dramatically • New departments emerged • Industrial engineering • Personnel • Quality Control • Rapid growth of middle management

8. Problems with Taylorism • Staunchly opposed by trade unions • Workers reacted with sabotage and group resistance. • Led to the dehumanization of work. (e.g. Taylor in describing the manufacture of pig iron: “The work is so crude…that it would be possible to train an intelligent gorilla so as to become a more efficient pig-iron handler than any man can be”)

9. Human Relations • The birth of informal organization--that an organization is comprised of social interaction that consequently shapes worker motivation and productivity (can be in both positive and negative directions—Hawthorne Studies) • Human Relations recognizes that there are other factors beyond rational economics that drive individual behavior (especially social interaction). • Productivity and satisfaction are inextricably linked—You cannot forget the human side of the equation

10. Theory X versus Theory Y: Douglas MacGregor (1960) Theory X (traditional approach) Theory Y (modern approach) Accepting, promotes betterment Orientation toward people Distrusting Need to achieve and be responsible Assumptions about people Basically Lazy High (very interested) Low (disinterested) Interest in working Conditions under which people will work hard Work when appropriately trained and recognized Work when pushed

11. Weber/Taylorism/Human Relations • All rational systems perspectives that conceptualize organizational activities from a managerial perspective—i.e. how to maximize efficiency and profitability • All search for the ONE BEST WAY to structure and manage organizations in order to maximize efficiency and profitability • Mid-1960s—Birth of Contingency Theory • There is no one nest way to structure or manage an organization • Managers need to be attentive to the dynamics of their environment (competitors, suppliers, stability of technology etc.)

12. The Paradoxof Contemporary Administration Manager’s dual search for certainty & flexibility Short run: Reduction or elimination of uncertainty in order to achieve maximum efficiency Long run: Strive for flexibility to secure their organization’s future in an uncertain world Thus, While consistency, reliability, and efficiency are important, so too are flexibility, speed, innovation, learning, and responsiveness.

13. Stable Low Uncertainty (e.g. salt mfg.) Moderate Uncertainty (e.g. universities) Degree of Dynamism Moderately High Uncertainty (e.g. consumer products) High Uncertainty (e.g. biotech) Unstable Basic Types of Environments Homogeneous Heterogeneous Degree of Complexity

14. Organizational Design/Leadership • Involves the management of vision, strategy, structure, culture, human resource systems,information systems, rewards etc. in a way that unifies the collective efforts of organizational members to achieve organizational goals

15. Rational Systems View of Organizations VISION STRATEGY DECISION SUPPORT SYSTEMS STRUCTURE HUMAN RESOURCE SYSTEMS REWARD SYSTEMS ORGANIZATIONAL CULTURE PERFORMANCE

16. VISION • Who are we? What do we do? • Is inspiring and goes beyond a mundane focus on profitability • Examples: • 3M--focus on innovation-- “Thou shalt not kill a new product idea” • Boeing-- “Eat, breath, and sleep the world of aeronautics • Johnson & Johnson-- “the company exists to alleviate pain and disease”

17. STRATEGY • What more specific kinds of actions should we take in order to realize our vision and enhance the welfare of the organization? • Organizational strategies often focus on how to position yourself in a particular product market • In order to construct an effective strategy, top managers must develop a sound understanding of: • the unique competences of the organization • the competitive landscape • consumer orientations and trends

18. Structure: Mechanistic/Organic Mechanistic organization an internal organizational structure in which people perform specialized jobs, rigid rules are imposed, and authority is vested in a few, top-ranked officials (appropriate for stable environment) Organic organization an internal organizational structure in which jobs tend to be very general, there are few rules, and decisions can be made by lower- level employees (appropriate for unstable environments)

19. Low Decentralization High decentralization (High centralization) (low centralization) Eliminates the additional Can eliminate levels of management, responsibility not desired by making a leaner organization people performing routine jobs Permits crucial decisions to be Promotes greater opportunities for made by individuals who have decisions to be made by people closest the “big picture” to problems Centralization/De-Centralization • Decentralization extent to which authority and decision making are spread throughout all levels of an organization rather than being reserved for top management (i.e., centralization)

20. Steamlining, Small Company Thinking Development of Teamwork Continued Maturity Addition of Internal Systems Decline Provision of Clear Direction Crisis: Need for Revitalization Crisis: Need to Deal with too much Red Tape Creativity Crisis: Need for Delegation with Control Crisis: Need for Leadership ORGANIZATIONAL LIFE CYCLE* Large SIZE Small 1. Entrepreneurial Stage 2. Collectivity Stage 3. Formalization Stage 4. Elaboration Stage 5. Reorientation Stage * Adapted from Daft, Organization Theory and Design (1995), p. 175

21. ORGANIZATIONAL LIFE CYCLE CHARACTERISTICS* 1. Entrepreneurial Stage 2. Collectivity Stage 3. Formalization Stage 4. Elaboration Stage Nonbureaucratic Prebureaucratic Bureaucratic Very Bureaucratic Characteristic Informal, one-person show Mostly Informal, Some Procedures Formal Procedures, Division of Labor Teamwork within Bureaucracy Structure Major Product or Service, with variations Products or Services Single Product or Service Line of Products or Services Multiple Product or Service Lines Personal, Paternalistic, By owner- Manager Personal, Contribution to Success, By Employees and Managers Extensive, Tailored to Product and Department Reward/ Control System Impersonal, Formalized Systems Internal Stability, Market Expansion Goal Survival Growth Reputation Top Management Style Team Approach, Attack Bureaucracy Individualistic, Entrepreneurial Charismatic, Direction-Giving Delegation with Control * Adapted from Daft, Organization Theory and Design (1995), p. 178