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An organization, by its most basic definition, is an assembly of people working
together to achieve common objectives through a division of labor. An
organization provides a means of using individual strengths within a group to
achieve more than can be accomplished by the aggregate efforts of group members
working individually. Business organizations are formed to deliver goods or
services to consumers in such a manner that they can realize a profit at the
conclusion of the transaction. Over the years, business analysts, economists,
and academic researchers have pondered several theories that attempt to explain
the dynamics of business organizations, including the ways in which they make
decisions, distribute power and control, resolve conflict, and promote or
resist organizational change. As Jeffrey Pfeffer summarized in New Directions
for Organization Theory, organizational theory studies provide "an
interdisciplinary focus on a) the effect of social organizations on the
behavior and attitudes of individuals within them, b) the effects of individual
characteristics and action on organization,'� c) the performance, success, and
survival of organizations, d) the mutual effects of environments, including
resource and task, political, and cultural environments on organizations and
vice versa, and e) concerns with both the epistemology and methodology that
undergird research on each of these topics."
Of the various organizational theories that have been studied in this realm,
the open-systems theory has emerged as perhaps the most widely known, but
others have their proponents as well. Indeed, some researchers into
organizational theory propound a blending of various theories, arguing that an
enterprise will embrace different organizational strategies in reaction to
changes in its competitive circumstances, structural design, and experiences.
BACKGROUND
Modern organization theory is rooted in concepts developed during the
beginnings of the Industrial Revolution in the late 1800s and early 1900s. Of
considerable import during that period was the research done by of German
sociologist Max Weber (1864 1920). Weber believed that bureaucracies, staffed
by bureaucrats, represented the ideal organizational form. Weber based his
model bureaucracy on legal and absolute authority, logic, and order. In Weber's
idealized organizational structure, responsibilities for workers are clearly
defined and behavior is tightly controlled by rules, policies, and procedures.
Weber's theories of organizations, like others of the period, reflected an
impersonal attitude toward the people in the organization. Indeed, the work
force, with its personal frailties and imperfections, was regarded as a
potential detriment to the efficiency of any system. Although his theories are
now considered mechanistic and outdated, Weber's views on bureaucracy provided
important insight into the era's conceptions of process efficiency, division of
labor, and authority.
Another important contributor to organization theory in the early 1900s was
Henri Fayol. He is credited with identifying strategic planning, staff
recruitment, employee motivation, and employee guidance (via policies and
procedures) as important management functions in creating and nourishing a
successful organization.
Weber's and Fayol's theories found broad application in the early and
mid-1900s, in part because of the influence of Frederick W. Taylor (1856 1915).
In a 1911 book entitled Principles of Scientific Management, Taylor outlined
his theories and eventually implemented them on American factory floors. He is
credited with helping to define the role of training, wage incentives, employee
selection, and work standards in organizational performance.
Researchers began to adopt a less mechanical view of organizations and to pay
more attention to human influences in the 1930s. This development was motivated
by several studies that shed light on the function of human fulfillment in
organizations. The best known of these was probably the so-called Hawthorn
Studies. These studies, conducted primarily under the direction of Harvard
University researcher Elton Mayo, were conducted in the mid-1920s and 1930s at
a Western Electric Company plant known as the Hawthorn Works. The company
wanted to determine the degree to which working conditions affected output.
Surprisingly, the studies failed to show any significant positive correlation
between workplace conditions and productivity. In one study, for example,
worker productivity escalated when lighting was increased, but it also
increased when illumination was decreased. The results of the studies
demonstrated that innate forces of human behavior may have a greater influence
on organizations than do mechanistic incentive systems. The legacy of the
Hawthorn studies and other organizational research efforts of that period was
an emphasis on the importance of individual and group interaction, humanistic
management skills, and social relationships in the workplace.
The focus on human influences in organizations was reflected most noticeably by
the integration of Abraham Maslow's "hierarchy of human needs" into
organization theory. Maslow's theories introduced two important implications
into organization theory. The first was that people have different needs and
therefore need to be motivated by different incentives to achieve
organizational objectives. The second of Maslow's theories held that people's
needs change over time, meaning that as the needs of people lower in the
hierarchy are met, new needs arise. These assumptions led to the recognition,
for example, that assembly-line workers could be more productive if more of
their personal needs were met, whereas past theories suggested that monetary
rewards were the sole, or primary, motivators.
Douglas McGregor contrasted the organization theory that emerged during the
mid-1900s to previous views. In the 1950s, McGregor offered his renowned Theory
X and Theory Y to explain the differences. Theory X encompassed the old view of
workers, which held that employees preferred to be directed, wanted to avoid
responsibility, and cherished financial security above all else.
McGregor believed that organizations that embraced Theory Y were generally more
productive. This theory held that humans can learn to accept and seek
responsibility; most people possess a high degree of imaginative and
problem-solving ability; employees are capable of effective self-direction; and
that self-actualization is among the most important rewards that organizations
can provide their workers.
OPEN-SYSTEMS THEORY
Traditional theories regarded organizations as closed systems that were
autonomous and isolated from the outside world. In the 1960s, however, more
holistic and humanistic ideologies emerged. Recognizing that traditional theory
had failed to take into account many environmental influences that impacted the
efficiency of organizations, most theorists and researchers embraced an
open-systems view of organizations.
The term "open systems" reflected the newfound belief that all organizations
are unique in part because of the unique environment in which they operate and
that they should be structured to accommodate unique problems and
opportunities. For example, research during the 1960s indicated that
traditional bureaucratic organizations generally failed to succeed in
environments where technologies or markets were rapidly changing. They also
failed to realize the importance of regional cultural influences in motivating
workers.
Environmental influences that affect open systems can be described as either
specific or general. The specific environment refers to the network of
suppliers, distributors, government agencies, and competitors with which a
business enterprise interacts. The general environment encompasses four
influences that emanate from the geographic area in which the organization
operates. These are:
Cultural values, which shape views about ethics and determine the relative
importance of various issues.
Economic conditions, which include economic upswings, recessions, regional
unemployment, and many other regional factors that affect a company's ability
to grow and prosper. Economic influences may also partially dictate an
organization's role in the economy.
Legal/political environment, which effectively helps to allocate power within a
society and to enforce laws. The legal and political systems in which an open
system operates can play a key role in determining the long-term stability and
security of the organization's future. These systems are responsible for
creating a fertile environment for the business community, but they are also
responsible for ensuring via regulations pertaining to operation and taxation
that the needs of the larger community are addressed.
Quality of education, which is an important factor in high technology and other
industries that require an educated work force. Businesses will be better able
to fill such positions if they operate in geographic regions that feature a
strong education system.
The open-systems theory also assumes that all large organizations are comprised
of multiple subsystems, each of which receives inputs from other subsystems and
turns them into outputs for use by other subsystems. The subsystems are not
necessarily represented by departments in an organization, but might instead
resemble patterns of activity.
An important distinction between open-systems theory and more traditional
organization theories is that the former assumes a subsystem hierarchy, meaning
that not all of the subsystems are equally essential. Furthermore, a failure in
one subsystem will not necessarily thwart the entire system. By contrast,
traditional mechanistic theories implied that a malfunction in any part of a
system would have an equally debilitating impact.
BASIC ORGANIZATIONAL CHARACTERISTICS
Organizations differ greatly in size, function, and makeup. Nevertheless, the
operations of nearly all organizations from the multinational corporation to a
newly opened delicatessen are based on a division of labor; a decision-making
structure; and rules and policies. The degree of formality with which these
aspects of business are approached vary tremendously within the business world,
but these characteristics are inherent in any business enterprise that utilizes
the talents of more than one person.
Organizations practice division of labor both vertically and horizontally.
Vertical division includes three basic levels top, middle, and bottom. The
chief function of top managers, or executives, typically is to plan long-term
strategy and oversee middle managers. Middle managers generally guide the
day-to-day activities of the organization and administer top-level strategy.
Low-level managers and laborers put strategy into action and perform the
specific tasks necessary to keep the organization operating.
Organizations also divide labor horizontally by defining task groups, or
departments, and assigning workers with applicable skills to those groups. Line
units perform the basic functions of the business, while staff units support
line units with expertise and services. In general, line units focus on supply,
production, and distribution, while staff units deal mostly with internal
operations and controls or public relations efforts.
Decision-making structures, the second basic organizational characteristic, are
used to organize authority. These structures vary from operation to operation
in their degree of centralization and decentralization. Centralized decision
structures are referred to as "tall" organizations because important decisions
usually emanate from a high level and are passed down through several channels
until they reach the lower end of the hierarchy. Conversely, flat
organizations, which have decentralized decision-making structures, employ only
a few hierarchical levels. Such organizations are typically guided by a
management philosophy that is favorably disposed toward some form of employee
empowerment and individual autonomy.
A formalized system of rules and policies is the third standard organizational
characteristic. Rules, policies, and procedures serve as templates of
managerial guidance in all sectors of organizational production and behavior.
They may document the most efficient means of accomplishing a task or provide
standards for rewarding workers. Formalized rules provide managers with more
time to spend on other problems and opportunities and help ensure that an
organization's various subsystems are working in concert. Ill-conceived or
poorly implemented rules, of course, can actually have a negative impact on
business efforts to produce goods or services in a profitable or satisfactory
manner.
Thus, organizations can be categorized as informal or formal, depending on the
degree of formalization of rules within their structures. In formal
organizations, say researchers, management has determined that a comparatively
impersonal relationship between individuals and the company for which they work
is viewed as the best environment for achieving organizational goals.
Subordinates have less influence over the process in which they participate,
with their duties more clearly defined.
Informal organizations, on the other hand, are less likely to adopt or adhere
to a significant code of written rules or policies. Instead, individuals are
more likely to adopt patterns of behavior that are influenced by a number of
social and personal factors. Changes in the organization are less often the
result of authoritative dictate and more often an outcome of collective
agreement by members. Informal organizations tend to be more flexible and more
reactive to outside influences. But some critics contend that such arrangements
may also diminish the ability of top managers to effect rapid change.
ORGANIZATIONAL THEORY IN THE 1980S AND 1990S
By the 1980s several new organizational system theories received significant
attention. These included Theory Z, a blending of American and Japanese
management practices. This theory was a highly visible one, in part because of
Japan's well-documented productivity improvements and the United States'
manufacturing difficulties during that decade. Other theories, or adaptations
of existing theories, emerged as well, which most observers saw as indicative
of the ever-changing environment within business and industry.
The study of organizations and their management and production structures and
philosophies continued to thrive throughout the 1990s. Indeed, an understanding
of various organizational principles continues to be seen as vital to the
success of all kinds of organizations from government agencies to business of
all shapes and sizes, from conglomerates to small businesses. The study
continues and although academics are far from a single theory of organization
development each serious academic undertaking adds to the knowledge base on the
subject. The changes in the ways in which we communicate and others brought
about by advances in technology will likely create more opportunity for study.
As our societies change, so to do the ways in which our organizations operate.
BIBLIOGRAPHY
Hatch, Mary Jo. Organization Theory: Modern, Symbolic, and Postmodern
Perspectives. OUP-USA, 1997.
Nickelson, Jack A., and Todd R. Zenger. "Being Efficiently Fickle: A dynamic
theory of organizational choice." Organizational Science. September-October
2002.
Pfeffer, Jeffrey. New Directions for Organization Theory: Problems and
Prospects. Oxford University Press, 1997.
Putnam, Linda L., and Fredrick M. Jablin. New Handbook of Organizational
Communications: Advances in Theory, Research, and Methods. Sage Publications
Inc., December 2004.
Wagner-Tsukamoto, Sigmund. Human Nature and Organization Theory. Edward Elgar
Publishing, 2003.