Designing an organization

Purpose: The reason why an organization exists

Mission Statement: a short statement of why an organization exists. It often includes
reference to what an organization does as well as who the organization serves
Corporate Governance: the system by which organizations are directed and controlled.
Corporate governance deals directly with issues related to the purpose of the organization and
how it is controlled.
Stakeholder Theory: a theory of corporate governance that suggests that firms must account
for multiple constituencies impacted by business entities like employees, suppliers, local
communities, creditors, shareholders and others. It is sometimes contrasted with the
shareholder value perspective.
Shareholder Value – a perspective that suggests that the primary responsibility of the firm is
to maximize returns for shareholders.
Organizational Effectiveness: The extent to which an organization fulfills its intended
purpose. A broader measure of performance that goes beyond efficiency and financial
measures of success.
Balanced Scoreboard: a performance management tool that can be used by managers to
keep track of key performance indicators across a range of relevant outcomes. Typically
includes metrics related to financial performance, operational efficiency, learning and growth
of employees, and customer or other stakeholder satisfaction.
Rational System: A way of thinking about organizations that treats the organization as
similar to a machine that operates efficiently to reach a well-defined goal.
Agency Theory: a perspective on organizations that is focused on reducing costs associated
with the principal–agent problem where sometimes an agent has incentives to not act in the
best interests of the principal.
Natural System Approach – a way of viewing organizations as a community of people, with
the complexities that accompany human behavior and interaction. Acknowledges realities
such as multiple organizational goals, political maneuvering, the development of
organizational culture, informal structure etc.
Pluralistic Ignorance: A situation wherein individuals underestimate the extent to which
others share their concerns.
Open System Approach: a way of viewing organizations as similar to adaptive organisms
that must adapt to the circumstances of the external environment in order to survive.
Organizational structure: the ways in which tasks in the organization are divided, grouped,
and coordinated
Functional structure: a way of organizing that groups employees according to a similar set
of roles or tasks.
Divisional structure: a way of organizing that groups employees according to particular
products, services, geographic locations or markets.
Matrix structure: a way of organizing that simultaneously implements elements of a
functional and divisional structure in an effort to achieve the benefits of both types of
structure. Matrix structures have dual reporting lines.
Hybrid structure: a way of organizing in which more than one organizational structure is
used.
Network structure: a way of organizing in which the firm focuses on its core competencies
and outsources other aspects of the organization
Contingency Theory: perspective that suggests there is not one best way to structure a
company. Rather, the best structure is contingent upon a variety of different contextual
factors that must be accounted for when making design choices.
Holacracy: A method of decentralized management and organizational governance, in which
authority and decision-making are distributed among self-organizing teams rather than
residing in a management hierarchy.
Mechanistic Structure: a way of organizing that uses formal structure, rules, processes, and
standard operating procedures to accomplish work in an efficient manner. Jobs are clearly
defined and highly specialized, decision-making is centralized at the top.
Organic Structure: a way of organizing that is less formalized, with few rules and standard
operating procedures. Jobs are tend to be broad and not clearly defined and decision-making
is decentralized throughout the organization.
Organizational Life Cycles: a way of thinking about organizations that suggests that most
organizations go through predictable stages as they grow and that each phase presents similar
challenges that the firm must overcome to continue to grow.
Organizational integration: the ways in which different parts of the organization coordinate
and work together
Organic Growth: growth that originates within the organization and that tends to be more
gradual.
Inorganic Growth: growth which is brought about by bringing in external sources, primarily
through mergers and acquisitions.
Clan Control: the use of shared values, cultural norms, and a shared sense of identity and
purpose to influence behavior in the organization.
Market Control: the use of market forces to provide a degree of discipline and control in
organizations.
General environment: elements outside the organization that indirectly affect the focal
organization. Can include elements of the political, economic, social and technical
environment.
Environmental uncertainty: the degree to which the external environment is complex and
unstable
Task Environment: aspects of the external environment that have a direct effect on the
organization.
Boundary spanning roles: individuals that work across organizational boundaries whether
those are internal boundaries between departments in the same firm or external boundary
spanning roles that operate at the boundary of the organization.
Competency Trap: A situation where a firm becomes over-reliant on competencies it has
developed and are ill-prepared to adapt as the external environment changes.
Disruptive innovation: describes the process by which new entrants to a market start off
with a worse product or service but over time, are able to improve to the point of killing off
incumbent firms.
Sustaining innovation: describes the process by which firms create and deliver better
products and services to their best customers.
Ambidextrous organization: An organization which is set up to effectively exploit what it
already does well in the mainstream business while being able to explore new opportunities
in a separate unit of the business.