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MGT504 - Organization Theory and Design - Lecture Handout 02

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Organizations are hard to see. We see outcroppings, such as a tall building or a computer workstations or a friendly employee; but the whole organization is vague and abstract and may be scattered among several locations. We know organizations are there because they touch us every day. Indeed, they are so common that we take them for granted. We hardly notice that we are born in a hospital, have our birth records registered in a government agency, are educated in schools and universities, are raised on food produced on corporate farms, are treated by doctors engages in a joint practice, buy a house built by a construction company and sold by a real estate agency, borrow money from a bank, turn to police and fire department when trouble erupts, use moving companies to change residences, receive an array of benefits from government agencies, spend forty hours a week working in an organization, and are even laid to rest by an undertaker.


Organizations as diverse as a church, a hospital, and IBM have characteristics in common. The definition used in this course to describe organizations is as follows: organizations are (1) social entities that (2) are goal directed (3) are designed as deliberately structured and coordinator activity systems, and (4) are linked to the external environment.

The key element of an organizations not a building or a set of policies and procedures; organizations are made up of people and their relationship with one another. An organization exists when people interact with one another to perform essential functions that help attain goals. Recent trends in management recognize the importance of human resources, with most new approaches designed to empower employees with greater opportunities to learn and contribute as they work together toward common goals. Mangers deliberately structure and coordinate organization resources to achieve the organization’s purpose. However, even though work may be structured into separate departments or sets of activities, most organization today are striving for greater horizontal coordination of work activities, often using teams of employees from different functional area to work together on projects. Boundaries between departments as well as those between organizations are becoming more flexible and diffuse as companies face the need respond to changes in the external environment more rapidly. An organization cannot exist without interacting with customers, suppliers, competitors, and other elements of the external environment. Today, some companies are even cooperating with their competitors, sharing information and technology to their mutual advantage.


It may seem hard to believe today, but “organizations” as we know them are relatively recent in the history of humankind. Even in the late 19th century there were few organizations of any size or importance. No labor unions, no trade associations, few large business, non-profit organizations or governmental departments. What a change has occurred since then! The Industrial Revolution and the development of large organizations transformed all of society. Gradually, organizations become central to people’s lives and today they exert a tremendous influence in our society.
Organizations are all around us and shape our lives in many ways. But what contributions do organizations make?
Why are they important? Following are some reasons:

  1. Bring together resources to achieve desired goals and outcomes
  2. Produce goods and services efficiently
  3. Facilitate innovation
  4. Use modern manufacturing and computer-based technology
  5. Adapt to and influence a changing environment
  6. create value for owners, customers and employees
  7. Accommodate ongoing challenges of diversity, ethics, and the motivation and coordination of employees.

Seven reasons organizations are important to you and to the society. First, Organization brings together resources to accomplish specific goals. Consider MaMaMedia Inc. (www.mamamedia.com), founded by Irit Harel. To accomplish the goals of providing an entertaining children’s website based on the education research of the legendary MIT Media Lab, Harel had to raise more than $11 million; negotiate alliances with partners such as scholastic, Inc., Netscape Communications, America Online , and General Mills; recruit quality employees who believed in the theory that interactive play promotes learning; develop activities that promote constructive creativity; and line up advertisers and sponsors for the site.

Organizations also produce goods and services that customers want at competitive prices. Companies look for innovative ways to produce and distribute goods and services more efficiently. One ways is through e-commerce, as discussed earlier, and through the use of computer-based manufacturing technologies. Residing organizational structures and management practices can also contribute to increased efficiency. Organizations create a drive for innovation rather than a reliance on standard products and outmoded ways of doing things. The trend toward the learning organization reflects the desire to improve in all areas; Computer-aided design and manufacturing and new information technology also help promote innovation.

Organization adapts to and influences a rapidly changing environment. Some large companies have entire department’s charges with monitoring the external environment and finding ways to adapt to or influence that environment. One of the most significant changes in the external environment today is globalization. Organizations such as Coca-Cola, AES Corporation, Heineeken Breweriesm and Xerox are involved in strategic alliances and partnership with companies around the world in an effort to influence the environment and compete on at global scale.

Through all of these activities, organization creates value for their owners, customers, and employees. Managers need to understand which part of the operation create value and which part do not; a company can be profitable only when the value it creates is greater than the cost of resources, McDonald’s made a through study of how to use its core competences to create better value for customers. The study resulted in the introduction of Extra Value Meals and the decision to open restaurants in different locations, such as inside Wal-Mar and Seer Stores.22 Finally, organizations have to cope with and accommodate today’s’ challenge of workforce diversity and growing concerns over ethics and social responsibility, as well as find effective ways to motivate employees to work together to accomplish organization goals.

Organizations shape our lives, and well-informed managers can shape organization. An understanding of organization theory enables managers to design organizations to functions more effectively.

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