Chapter 1: Organizations and Organizational Effectiveness

1- What is an Organization?

It is a tool people use to coordinate their actions to obtain something they desire to achieve their goals.
Groups or individuals create organizations that satisfy peoples’ needs such as shared interests and
complimentary skills. Organizations called police force, bank, or army are created by people who value
security. An organization is a response to and a means of satisfying human needs and new organizations
are spawned once new technologies and new needs are discovered, and organizations die or transform
when satisfied needs are no longer on the table. We tend to think about organizations when they fail us in
some way, when we are in a long line in a bank on a Friday afternoon, or when our TV or wifi stops
working. People have a casual attitude towards organizations because they are intangible and nobody has
ever seen or touched it, but we see the products or services that an organization provides. And a core
attribute of successful organization is efficient grouping of various resources to produce in-demand
products and services.

How do Organizations create value?

Organizational values are created within a three-stage process; Input stage: The procuring of the raw
materials/resources, machinery, human resource, capital, information and knowledge. At the input stage,
value depends on how an organization selects and obtains the inputs; certain inputs create more value
than others. The use of machinery and technology with human skills and abilities to transform the inputs.
At the conversion stage: Value is a function of employees’ skills, including learning from and responding
to the environment. The transformation of inputs into desired finished goods/products (Output) of the
organization for the customers, Output creates value if it satisfies customer need. However, these
processes cannot be done recklessly since the survival of every organisations relies on the value created
for and recognised by its customers. The value creation process is affected by external forces of the
organization, like the activities present in the external environment as economically, socially, and
politically, which are always beyond the control of every organization. Therefore, it is very important to
be on top of things and get real time update and knowledge about the external environment in order to
better adapt with the forces for successful attainment of the corporate objectives.

2- Why do Organizations exist?

The use of an organization allows individuals to jointly: 1-Increase specialization of the division and
labor: Individuals are permitted by organizations to concentrate on a smaller area of field that allows
them to become more specialized and skilled with their actions. 2-Use large-scale technology: Here
organizations can take advantage of economies of scale (are cost savings that emerge where in a large
volume, goods are produced) and economies of scope ( are cost savings that are acquired when
wasted resources are used more usefully by organizations seeing that they can be split across different
products). 3-Manage the extrernal environment: The organizational environment has pressures that
makes the organization preffered as it transforms inputs into outputs and most people aren’t on the
level of managing complex environments while value creation is permitted for customers,
organizations, and employees by resource specialization. 4-Economize on transaction costs:
Problems emerge when the cooperation of people to create goods is in place. And there are certain
costs linked with monitoring, negotiating, and governing exchanges between individuals to solve the
task alike transaction challenges and they are transaction costs. Yet, the power of an organization to
manage these exchanges between people lowers the transaction costs related to them. 5-Exert power
and control: Production efficiency can be elevated as production and task requirements are obeyed
when organizations pile up the pressure on the people. And for the work to be perfectly done, the
people need to come in on time always, behave in the interests of the organization, and accept the
authorities above them. Also people who fail to obey can be let go or even be rewarded because of
good performances by the organization.

3- Organizational Theory, Design, and Change:

Organizational theory is the study of how organizations function and how they affect and are
affected by the environment in which they operate. 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. 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. Organizational design is the process by which managers select and
manage aspects so structure and culture of an organization can control the activities necessary to
achieve its goals. It 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. Its is like the brain in the human body that coordinates,
regulates, and monitors the functions of all the other human organs in the body. Organizational
change is the process by which organizations move from their present state to some desired future
state to increase their effectiveness. It’s goal is to find new or improved ways of using resources and
capabilities to increase an organization’s ability to create value, and hence its performance.

4- How do Managers measure Organizational Effectiveness ?

Organizational Effectiveness is when certain resources can be used and made into a value. The three
approaches that are used are:

The External Resource Approach (Control): Is a method managers use to evaluate how effectively
an organization manages and controls its external environment. To measure the effectiveness of their
control over the environment by using indicators such as stock price, profitability, and ROI, which
compare the performance of their organization with the performance of others (Competitors).
Managers closely monitor the price of their company’s stock because of the impact it has on
shareholder expectations. Managers gather information on the quality of their company’s products as
compared with their competitors’ products to attract customers. Top management’s ability to perceive
and respond to changes in the environment or to initiate change and be first to take advantage of a
new opportunity is another indicator of an organization’s ability to influence and control its
environment. However, this approach fails to consider organizational culture and structure and
without their approval, the organization will prove difficult for the achievement of these control
measures.

The Internal Systems Approach (Innovation):Is a method that allows managers to evaluate how
effectively an organization functions and how it’s resources operate. To be effective, an organization
needs a structure and a culture that could foster adaptability and quick responses to changing
conditions in the environment. The organization also needs to be flexible so it can speed up decision
making and create products and services rapidly. Measures of an organization’s capacity for
innovation includes the length of time needed to make a decision, the amount of time needed to get
new products to market, and the amount of time spent coordinating the activities of different
departments. However, this approach does not consider the costs involved in these processes nor the
uncontrollable factors of the external environment.

The Technical Approach (Efficiency): Is a method managers use to evaluate how efficiently an
organization can convert some fixed amount of organizational resources into finished goods and
services. Technical effectiveness is measured in terms of productivity and efficiency (the ratio of
outputs to inputs). For example, an increase in the number of units produced without the use of
additional labor indicates a gain in productivity, and so does a reduction in the cost of labor or
materials required to produce each unit of output. Productivity measures are objective indicators of
the effectiveness of an organization’s production operations. In many settings the rewards offered to
both employees and managers are closely related to improvements in productivity, and it is critical to
select the right measures to evaluate effectiveness. Employees’ attitude, motivation, and desires to
cooperate are also important factors in influencing productivity and efficiency. However, this
approach considers neither the environment nor structure and culture.