As defined by Daft (2009), organizations are bodies with goals, structured and coordinated activities, and are linked to the external environment (p.11). Organizational theory depends on how a company operates and how the environment affects the running of the organization. In simple terms, organizational theory, also referred to organizational behavior, is defined as the study of how individuals or groups of persons act in an organization.
The organizational research and design are essential during restructuring or effecting changes in organizations; however, it is essential to apply the correct organizational changes to increase effectiveness and efficiency (Bollingtoft, Hakonsson and Niesen, 2009, p.79).
Organization theory is a tool used by managers to understand, diagnose, and respond to organizational needs (Daft, 2009, p.10). This theory can be applied to all industries, for-profit and non-profit organizations. Since organizations are not static, there is need for constant changes to adapt to new environment in the market. Some of the causes of the constant change include globalization, competition, diversity, technology, ethics, and social responsibility.
On the other hand, organization designs are means of evaluating which/and why certain methods are chosen to effect and manage structure and culture, and to control activities in order to achieve goals. Moreover, the benefits of proper organizational design are; the company is able to handle contingences, gains competitive edge, facilitate management of diversity, and promote efficiency, speed, and innovation.
Introduction to Organizational Theory
Code of ethics provides a framework of operation and code of conduct for persons and stakeholders in an organization (Berbeito, 2004, p.122).
Code of Ethics
The intent of this code is to guide all stakeholders and employees on lawful and ethical behavior. This code applies to all people including the directors. Various codes of ethics are discussed below.
Compliance with laws, regulations, rules, and policies: The employees and the directors should learn and comply with the rules, regulations, and policies of the company and the government, while any contravention will result to disciplinary measures.
Conflict of interest: Employees should not engage in activities that will result in conflict of interest; they should engage in acts that promote the interest of the company.
Employees’ relations: Employees should promote harmony and avoid discrimination at the work place. In addition, they should embrace diversity, inclusiveness, and understanding.
Confidential company information: Confidential company information is defined in three ways: information that is not known to the public, information that confers the company economic advantage and any information that reasonable measures are taken to keep it secret. All employees have the obligation of protecting classified information from the public domain or other competitors. The employees have a clear understanding of what information is confidential or not.
Violation: Violation of the code of ethic will result to disciplinary measure to the parties involved, and this may be in form of dismissal, legal recourse, or compensation for losses incurred by the firm as a result of employees failure to comply with the code of ethics.
The relationship between organizational theory, design, and change on one hand and organizational structure and culture on the other hand is that, they both depend on each other and influence one another to an extent that neither will be effective without the presence of the other.
Organization culture refers to the common values and norms that control how individuals in an organization interact. It includes interaction between members in the organization, with customers and suppliers and other persons outside the organization. On the other hand, the organizational designs are routes picked by managers to manage the structure and culture, while change is the process of current position to a desired one.
Organizational structure involves formal or informal frameworks and policies that define reporting relationships, procedures, controls, and authority and decision-making processes. Moreover, organizational structures are indicators of type of culture in an organization. Managers can use these structures to shape the culture, values and strengthen or introduce the desired culture (Daft, 2009, p.381).
Organizational Design within the Global Environment
There are several types of organizational structures used in organization, each having its advantages and disadvantages. Centralization is a structural policy where the decision-making organ of the organization is concentrated at the top of the organizational hierarchy while decentralization is structure where decisions are made in consideration of all levels of the hierarchy (Griffins and Moorhead, 2009, p.418).
Employees at the lower end of hierarchy are involved in decision-making in decentralization, while in centralization, they are not involved. The importance of decentralizing is that decisions are made by the persons who are involved in the implementation – lower rank staff.
The factors that affect the balance between centralization and decentralization are purpose and goals of an organization, knowledge, and experience of the executives, size of the organization, geographical dispersion, technical complexity of tasks, and the period of the decision. Further, others include the importance of the decision, views of subordinates, planning and control procedures, and environmental factors (Rao & Rao, 1999, p.105).
Mutual adjustments and standardization are important in a business organization; however, their application varies from firm to firm. Primarily, mutual adjustment is informal communication between employees about process of their work. On the other hand, standardization refers to planning and implementing of standards and procedures that regulate the performance of duties in an organization (Wagner and Hollenbeck, 2009, p.241).
The tasks are specified and programmed by rules and procedures to obtain the required results. Factors that influence striking a balance between mutual adjustment and standardization are size of an organization, level of skill and knowledge of the staff, types of tasks involved and technicality of the tasks.
Dependency theories indicate that organizations are interlinked in inter-organizational and societal networks that influence inputs and outputs, beliefs and norms (House & GLOBE, 2004, p. 81). The Resource dependency theory is the most well developed theory of inter-organizational partnership.
The basic assumption of resource dependency theory is that individual organizations do not have all the resources they need to achieve their goals, thus they must acquire resources such as money, people, support services, and technological knowledge from other sources in order to survive.
The motivation of inter-organizational linkages is that it provides stability in organization. These networks help organizations to deal with the uncertainty of lack of resources in the future and to achieve similar, compatible, or congruous goals. In addition, similarity in values and attitudes make the formation of inter-organizational linkages more probable and make these linkages more stable over time.
A firm may at times engage in strategic alliances, which are links that firms form in a specific area with other firms; the nature could be arms-length contracts to joint ventures (Yoshina and Rangan, 1995, p.4). Primarily, alliances aid firms to learn new techniques and technology of production from other firms. On the other hand, resource sharing facilitates use of expensive technology, which smaller firms cannot afford. These alliances can sponsor and fund research programs that aid in availability of information and technical advancement, they provide a quicker means of growing ones organization (Hitt, Ireland and Hoskisson, 2008, p.187).
Designing Organizational Structure
Organization structures are essential parts of an organization as they determine how efficiently and effectively an organization accomplishes its goals and objectives. This will involve empowerment, which is a motivation concept that enables employees to achieve desired levels of performance; it occurs when employees are trained and equipped with tools, and information and are fairly rewarded for their contribution (Jain, 2005, p.173).
An organization will as well require manage cross-functional teams and self-managed teams, whereby the former involves works teams with members of the same hierarchy level but from different fields of work who come together to accomplish a task, and the latter involves a group of employees who are endowed with authority to make decisions on how its members perform their duties (Boone & Kurtz, 2010, p.395).
In tall organizational structure, the management should provide empowerment, which is associated to enabling rather than delegating duties, hence employees have capacity to engage and participate in attainment of organizational objectives. By use of self-managed teams, the organization benefits from sound decisions, as decision are made by the persons who are tasked with implementing, hence there is more owning of the decisions.
According to DuBrin (2008, p.256), most organizations find it important to address the issue of bureaucracy, which is a systematic mode of organization where regulations and techniques of control are laid. As an organization becomes bureaucratic, it crushes individualism; the people at the top of the hierarchy become further removed from the dynamics of human relations at the problem-solving level, while organization becomes inflexible, which decreases the ability of an organization to respond to changes in the market.
Moreover, over-bureaucratization causes inefficiencies in organizations as there is confusing titles and overlapping roles and duties of employees. Nevertheless, bureaucracy characteristics assist managers to formulate hierarchies of authority and specific regulations, which brings order, and prevent abuse of power in organization. By decentralizing, managers can lower the cost of bureaucracy as lower-level managers can make decision (Hill & Jones, 2009, p.386).
Organizational Specialization, Coordination, and Management of Culture
Organizations should participate in CSR activities; indeed, the participation in CSR by companies does directly reflect or promote growth in a company. The promotion of the well-being of its staff influences their productivity. In addition, an organization benefits from increased financial performances and improved relationship between the customers, employees and the community.
Corporate organizations are involved in CSR to recognize the significance of its stakeholder with the aim of bringing sustainable results to benefit both the community and the company. Customers are drawn to consume products from organizations that are corporate friendly even if they are sold at a premium rate. In terms of environmental conservation, organizations have to maintain and protect the environment in which they operate, and preserve the natural resources.
Functional structure is a structure that splits its organization into different departments depending on their roles and functions namely accounting and human resources. These departments are headed by line mangers, with the overall head of the organization being a chief executive officer who is in charge of the whole organization (Hitt, Ireland and Hoskisson, 2009, p.314).
One advantage of functional structure is that it allows specialization and active sharing of information among the various functions in the organization, as well as supporting the use of business level and corporate level strategies. This structure is mainly used in simple organizations that have little diversification.
An organization may also organize itself around a multidivisional structure, which separates various departments or divisions in an organization led by divisional managers. This is a contrast to functional structure, which has all the branches of the organization under one key leader. Another distinction between the two is that multidivisional structure groups divisions of an organization based on products, services or the market, while functional structure has departments that are based on the functions they play.
Therefore, multi-divisional structure can be adopted by organizations when they grow and develop, and there is need for diversifying the products or market. Organizations that produce several types of products or services or conduct their business in different countries or regions also adapt multi-divisional structure. Finally, organizations that cater and produce goods to different customers also favour this organization structure.
Organizations move to multidivisional structure as they grow and diversify their businesses; indeed, this structure enables the managers to compare the performance of each division in terms of profitability (Hill & Jones, 2009, p.427). In addition, organizations shift to multidivisional structure when entering new markets and/ or start to produce different products and services to a variety of markets (product diversification).
Organizational Design in Changing Global Environment
Due to the ever-changing global business environment, organizations have to embrace designs that address the issue of technical complexity, which refers to the level that machinery is used in production at the expense of human resources. Continuous-process technology involves productions, which are entirely mechanized, and complex technology is involved.
Technical complexity is higher in continuous process technology since the level of human involvement is very limited; the process also runs continuously from the start to the end (Daft & Marcic, 2008, p.277).
The level of technical complexity of an organization influences the complexity of its structure. Primarily, “massive technological changes are apparent in areas including manufacturing processes, computer-assisted design, data transmission, advanced communication links, and sophisticated information systems” (Hill & Jones, 2009).
However, the complexity of an organization structure does not always because of the level of technical complexity. Technical complexity sometimes may result to greater complexity of the employees; this can be dealt with by hiring more qualified and experienced workers, thus raising the cost of operation.
Corporate level strategies are strategies that a firm uses to acquire competitive advantage by choosing and managing different groups of businesses competing in different products market (Hill & Jones, 2009, p.154). Organizations choose to engage in corporate level strategy to expand their core domain as it facilitates resource allocation process. This is a crucial element in organizations that have multi-business allocation of limited resources.
In addition, organizations use corporate-level strategies to expand their business, as the strategy defines the market and helps to evaluate the viability introducing new product lines on top of the existing ones (Hill & Jones, 2009, p.285). Similarly, it directs whether to compete directly with other firms or to establish cooperative relationships i.e. strategic alliances are influenced by corporate-level strategy.
Corporate strategies determine the type of structure an organization would adapt when they expand from their core domain. In addition, it evaluates the viability of setting up strategic alliances, to what level an organization can diversify and how to enter or leave businesses to maximize the long-run profitability of an organization.
When organizations enter new domains, their culture, and structure are likely to be affected or altered. Moreover, some cultures can shift from individualism to collectivism or vice versa.
Organizational Change and Stages of Transformation
When implementing organizational change, firms have to choose between two main forms of changes, which include evolutionary and revolutionary change. Evolutionary change occurs over a long spell of growth and does not cause any major disturbance to the organizational structure, while revolutionary change is more dramatic or shifts organizational structure (Henry, 2008, p.320).
Change is referred to as revolutionary when quantum change radically transforms many elements of a structure of an organization. An example of revolutionary change is sudden closure or merger of some functions or business in organization that result to cut down of staff. An illustration of evolutionary change is improvements or incremental steps to fix a problem or a large part of a system.
Organizations are constantly experiencing change caused by various factors in the environment. In this case, planned changes are effected to bring operational efficiency or generate new market, or introduction of new technology while unplanned changes i.e. loss of market or loss of employees can affect organizations negatively.
Organization change is any change in the work environment i.e. methods of organizing and running of organizations (Kondalkar, 2009, 159). In addition, organization change can involve major corporate restructuring or minor changes in basic operation procedures. Organization change is also viewed as evolution changes, which result to revolutionary change.
Organizations exist in environment that involves constant interaction; there are external forces that contribute to organizational change including technology, socio-cultural changes, political, legal and economics (Kondalkar, 2009, 161).
Resistance to change is attributed to both contextual and individual factors. The status quo is the main hindrance of change among individuals, as individuals are accustomed to habits and routines that are difficult to alter. Similarly, the fear of unknown plays a big role in hindrance of organizational change. Contextual factors like roles, attitudes, behaviors, and norms offer resistance to organization change. Therefore, managers should develop and introduce incentive programs that assist employees to accept change.
Other factors that cause resistance to change include uncertainty of job security, lack of information, and loss of power or control that may result from the change. Rapidity and the extent of change may also result to resistance; gradual change is easily adapted compared to one that is effected with speed.
These types of changes are resisted as they bring about loss of power, downsizing of departments or transfer of managers to sections that are presumed less influential. Moreover, employees in an organization resist technological change if it will result to downsizing or reduce their power and control (Kondalkar, 2009, p.172).
Organizational Decision Making, Technology, and Innovation
The rational approach to decision making is the systematic analysis of a problem and choice of a solution; it consists of two stages, problem identification, and problem solution. It also involves analyzing quantitative data obtained through observations, mathematical analysis or modeling to make long-term decision.
There are three main theories that explain the process of decision making in organization – Carnegie decision theory, Garbage Can theory and Incremental theory. Carnegie decision theory illustrates that decisions are not made from a single entity but collection of subunits that comprise an organization. Moreover, Carnegie allows diversity, unlike rational approach (Slack and Parent, 2005, p.263).
Garbage Can model/theory factors in, the social and economic structure when making a decision on whom to participate in decision-making and discusses how the cultural values limit the choice outcomes. Garbage Can theory of decision-making indicates that the identification of solution policy does not necessarily arise from problem identification and its analysis.
It is important to distinguish Garbage Can model from Incremental model, with the main difference being based on the number and systematic of decisions made; for instance, in Garbage can model, there is flow of multiple decision-making while incremental considers how a single decision is made (Daft, 2009, p.470). Incremental model places less emphasis on the political and social factors that may affect decision-making. Moreover, the incremental decision-making happens over duration of time and not on one spontaneous decision.
Innovation is the leading cause of technological change, new and improved methods of operations are being discovered. Technology change enables organizations to produce products and services more effectively. In quantum change, the process is dynamic and continuous; there is constant change in quantum and incremental technology change.
This change causes emergence of new range of products, services, industries and affects the economy directly or indirectly. Technological change has resulted to shift of new type of labor, which is cheaper and effective. These changes produce economic growth and increased productivity in the end. They also help to alleviate adverse environmental impact and overcome resource constrains and scarcity (Daft, 2009, p.417).
Managing Power, Conflict, and Politics
Power, conflict, and politics in an organization seem to be interrelated and interdependent. Power is the “capacity to influence the attitudes or behavior of others” (Griffins and Moorhead, 2009, p.357); however, politics and influence depend on the “power relationship between the parties involved.” There is constant competition between different subunits in organization, mainly for resource allocation. This can bring about rivalry among the managers of each subunit with the more influential units influencing decision to their favor.
Dominating of a subunit over the others results to conflict whenever a subunit influences decisions without considering the goals of other parties or subunits. Moreover, the subunit in a firm that has the capability of obtaining and controlling most of the resources attain more power over the other subunits. Subunits that are capable of dealing and coping with uncertainty caused by the constantly changing task environment acquire more power over other units.
Primarily, prevention, absorption, and acquiring information are methods that organizations can use to cope with uncertainty. The problem of uncertainty can be dealt with by attaining information of likely trends in the future i.e. the information of possible change of prices of raw material in the future help an organization to prepare how to deal with the problem. Another way is absorption, which helps organizations to deal with uncertainties as they affect a subunit.
Subunits central to work flow, which the other subunits depend on in order to perform their duties, tend to gain power and may influence decision making to their favor. Similarly, subunits that are less centralized from workflow have less power.
In addition, subunits that are irreplaceable or non-substitutable exercise power in decision-making, while subunits that are headed by employees who are influential or irreplaceable can use their power and influence to increase the power of their subunits and hence decision-making. Lastly, organization structure can aid a subunit to gain power by allocating roles of decision-making on important issues; subunits, which are actively involved in decision-making, became the most powerful in an organization (Jain, 2005, p.171).
The organizational research and design are essential during restructuring or effecting changes in organizations. A code of ethics outlines the mode of behavior that is expected from employees of an organization. Organization structures like centralization and decentralization determine how organizations make decisions.
Additionally, strategic alliances enable organizations to access technology and resources that they cannot afford hence promoting their growth. Empowerment of employees through training and provision of tools and information ensure high productivity of employees, while self-managed teams and cross-functional teams facilitate productivity through cooperation and teamwork.
Organizational structure, which may be functional or multidivisional, is important in enhancing the flow of communication and running operations in an organization. Organizations use corporate level strategy to identify the types of product or service they should produce, which markets to venture in or leave and what geographic regions to operate. Subunits can acquire more power through centralization, being capable of handling uncertainties, and ability of subunits to acquire resources.
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