Chapter 1 - The Nature of Organizations.pdf

The Nature of Organizations
Unit-1
Kushal Acharya - Herald International College 1

Concept of Organization
• Organization is a social system composed of people, structure and
technology for achieving common goals in dynamic environment
• In other words, organization is a human association where two or
more people come together with a certain common aim and
equipment and desire to achieve certain common goals through
planned joint effort and team work

• According to W J Duncan, “ An organization is a collection of
interacting and interdependent individuals who work toward
common goals and whose relationship are determined according to a
certain structure.”
• According to S A Sharlekar and V A Sharlekar, “Organization is a
mechanism or a basic framework enabling person to work together
effectively and achieve the set goals through integrated group effort.
It is a medium for the management to exercise managerial functions.”

• Therefore, organization is a certain structure in which people work
together with joint effort to achieve a common goal in a changing
environment
• Tribe, families, ethnic groups can not be organizations

Characteristics of organization
• It is a human association
• It has a common goal
• There is division of work
• There is hierarchy of authority
• Flexibility/environmental adaptation

Types of Organization
Business
organization
Non-profit
organization
Cooperative
organization
Government
organization
International
organization

Organization goals
• Goal is the expected outcome from the activities performed in the
organization, which is also the reason behind existence of the
organization
• According to A. Etzioni, “Goal may be defined as a desired state of
affairs that organizations attempt to realize.”
• According to Koontz and Weihrich, “Goals are the ends towards which
activity is aimed – they are the result to be achieved.”

Purpose of goals
• To provide guideline and direction which the organizations should be
focused
• To develop good planning, as goals give a good idea about expectation,
time frame, necessary skills, technological requirements etc.
• To motivate employees, as goal is an outcome and provides an idea about
what people can achieve in future

Purpose of Goals
• To utilize the resources optimally, as goal provides a precise
definition and direction of work
• To evaluate and control the organizational performance, which is
essential to ensure that the organization’s functions are working
properly and on track

Types of goals
• Level wise goals:
• Corporate goals
• Mission
• Strategy
• Tactical Goals
• Operational Goals
• Time frame:
• Long term goals
• Mid term goals
• Short term goals

Types of Goals: Level Wise
• Corporate Goals –
• Broad goals which cover and direct overall activities of an organization
• Always functioning by the top level management
• Represented by mission and strategy
• Mission: Mission is a statement which describe the vision of top leadership
about organization and provides reason for the existence of the organization.
“To become the best college in Kathmandu valley” can be a mission
statement for Herald College
• Strategy: It is a long term action plans which is developed in the view of the
mission of an organization

Types of Goals: Level wise
• Tactical Goals
• Set to translate the strategic goals into action
• The target goals of the department formulated by department heads or
middle level managers
• Generally shorter time framed, more specifically and strongly focused. Eg:
15% increase in annual production
• Operational goals
• Unit or section level goals formulated by lower level managers
• More defined and time bound that help to achieve tactical goals
• Eg: Produce 100 units of product each day

Types of Goals: Time frame
• Long term goals: 5-10 years
• Mid term goals: 2-4 years
• Short term goals: 1 year or below

Features of Effective Organizational Goals

• Specific – precise, clearly defined and easily understood by all. Eg:
10% increase in sales, instead of sales growth
• Measurable – contain detail about how particular aspects of
performance will be measured in terms of quantity and quality
• Acceptable – should be accepted and agreed by workers responsible
for achieving them and the higher management who supervise the
goal attainment

• Realistic – all should have a faith on achievement of goal set.
Unachievable or unrealistic goals lead to excess expense and even
collapse of organization
• Time bound – clear estimation of time period for accomplishment of
goals in future.

Goal formulation: approaches
Top-down
approach
Bottom-up
approach
Management
by objectives

• Top-down approach:
• A directive approach
• Top executives first develop the corporate goals and disseminates them to the
middle and lower level managers for implementation
• Top executives use their knowledge and experience
• Bottom-up approach:
• A participatory approach
• Functional workers formulate goals for their positions and passes to the top
level for final revision and approval
• Top level finalizes the goals on the basis of mission statement and
disseminate to lower level for its implementation

• Management by Objectives (MBO):
• Initially suggested by Peter Druker in 1960
• Top and bottom level management jointly formulate the goals
• Determine each individual’s major area of responsibility in terms of goals
which gives employees a sense of ownership and motivation
• Collective effort of both superior and subordinates in goal setting process is
the major advantage of MBO

Goal formulation: other approaches
• Thompson and McEven’s approach –
• Suggests external environment of an organization determines the process of
formulating goals, because external environment has the potential to
influence organizational goal determination
• Managers formulate goals to establish a favorable balance with external
environment
• The more power the organization has, the more autonomy it has in
formulating goals

Goal formulation: other approaches
• Thompson and McEven’s approach –
• Thompson and McEven visualized two situations:
• When organization has great deal of power in relation to the environment, organization
is free to determine its own goals and pursue them with little concern for outside factors
• When external environment forces are more powerful, managers adopt strategy of
cooperation with the environment, or the organization would be unable to get the
resources it needs to attain its goals

• Cyert and March’s approach –
• Suggests that the process of goals formulation is influenced by the internal
factors of an organization
• There are various types of people and groups in an organization with different
interests, aspirations, power and potential
• Any decision to change this would threaten the interest of groups and
individual, which creates problems in goal formulation. Their full commitment
is essential in goal formulation

• Cyert and March’s approach –
• Organizations also have precedence, past commitments, agreements, policies
and systems, and goal formulation would take into account these realities
• Organizations cannot undo these traditions overnight. So, these internal
constraints have been reconciled through bargaining and negotiations with
different interest groups and individuals

Goal formulation: Process
Assigning a group
Environmental Scanning
Determining and listing potential goals
Brainstorming on potential goals
Reach consensus

• First a group is assigned, which comprises of all levels of managers,
where top management ensures strategic part and lower level
ensures formulation of realistic and achievable goal
• Once a group is assigned, information from the internal and external
environment is gathered and analyzed. This helps to understand the
strengths and weaknesses to capitalize the opportunities and
neutralize threats

• After doing environmental and SWOT analysis, potential goals are
formulated
• Once the potential goals are formulated, they are deeply thought in
every detail, and are discussed on their relevancy, strength, weakness
and success potential
• Next, the goals with most acceptance is selected by reaching
consensus. This helps in conflict reduction and motivation towards
goal achievement.

• Finally, once the goals are finalized, the related activities are
determined and tasks are assigned to the individual.

Problems in goal formulation
Improper
reward system
Environmental
constraint
Unwillingness
of managers
Resistance to
change
Resource
constraint

• Improper reward system – Employees are motivated only when there
is a good relation between goal formulation and reward system
• Environmental constraint – Some environmental changes are beyond
control, and may likely force organizations to make changes in their
policies and practices. These may lead to unrealistic and faulty goals
• Unwillingness of managers – Due to lack of knowledge, experience
and confidence, managers may show unwillingness to take part in
goal setting process, or may pressurize for unrealistic or faulty goals

• Resistance to change – Goals are formulated to achieve some changes
in current situation. However, employees and managers may resist
the changes because of fear of termination, unmatched knowledge
and new technology etc. and try to maintain status quo.
• Resource constraint – Goals are formulated on the basis of backup
resources available in the organization. However, inadequacy of such
resources may lead to unrealistic goals.

Goal Succession
• The deliberate or intentional change in goal after realization of
previous goal
• A conscious attempt by the management to adapt new or modified
goals
• Example: A team is assigned to manufacture low priced car. Once the
car is manufactured as expected, the same team may be assigned to
manufacture a fuel efficient car. Here, the goal is succeeded from
manufacturing a low priced car to a fuel efficient car.

Goal Succession
• Goal succession may be necessary for various reasons:
• Achievement of original goal
• Changes in external environment
• Unachievable goals

Goal displacement
• An unintentional change in goal by management
• Takes place when organizational energies and resources are utilized
away from the original goal
• Example: An organization shifts business from manufacturing to
trading because of the establishment of many manufacturing
organizations and severe competition

Goal displacement
• Goal displacement may occur due to various reasons:
• Too much delegation
• Personal goals or aspirations of employees over organization goals
• Organized activities of employees
• Too much bureaucracy
• Abstract goals

Changing perspectives of organization
• An organization is defined and viewed differently at different time
periods
• In the past, it was considered as a people gathering place where
workers do what the employer asks them to do, and there was less or
no concern about the work and performance
• However, as the time passed by, the concept of work, workers and
workplace has gradually changed

• Organizations are now not only a gathering place, but also is a place
where people are embraced as an asset and help them to groom their
activities and make them competent to accept and overcome any
environmental changes
• Different view points of organization are explained in the next slide –

Mechanistic
viewpoint on
Organization
Organizations
as open
system
Organization
as political
system
Organization
as culture
Organization
as learning
system

• Mechanistic viewpoint on Organization –
• Organization is considered a machine
• Most classical theories of organization represent this view
• Believes on fixed working hours, production schedules, maintenance
schedules, financial control system, quality control system, sales target, code
of conduct, clear job description and procedures etc.
• Aim is to routinize the activities and reduce uncertainty of operations
• Ignore human aspects and their effectiveness, imagination, innovation and
creativity
• Suitable in stable environment and where there is maximum requirement of
blue collar workers

• Organization as an open system –
• Organization is perceived as open adaptive system
• Can be compared to an energy system which has inputs, transformation
process and outputs
• The term system is applied to any activity or any collection of facts, ideas or
principles, which are so arranged as to present a united whole
• All operations of a system will be methodical, thorough and regular, and
above all as per plan to achieve set objectives

Inputs:
a. Human
b. Financial
c. Physical
d. Information
Processing:
a. Operations
b. Management
c. Control
Outputs:
a. Product
b. Services
c. Profit
d. Information
e. Leadership
f. Efficiency
g. Social responsibility
Environment
Environment
Feedback
System view of Organization

• Organization as a political system –
• Complex system of individual and coalitions, each having its own interest,
beliefs, values, preferences, perspectives and perception
• Coalitions continuously compete with each other for scarce organizational
resources
• Organizations are not about hierarchies and structures, but also about
internal politics that prevail in them
• Understanding and assessing organization form this perspective is important
to know its current activities and predict its behaviour

• Organization as culture –
• Many organizational behavior and decisions are predetermined by the
pattern of basic assumptions like beliefs, rituals and values held by the
members of organization
• Organizational culture is the means through which people in the organizations
learn and communicate what is acceptable and unacceptable, which acts as a
powerful force in influencing organizational life
• Power culture exists in small organization, role culture exists in large and
stable organizations, task culture is prevalent in job or project focused
organizations, and person culture found in organizations is individual focused
where organization is totally dependent on influential individual

• Organization as a learning system –
• Organization is a living and thinking open system
• Organization continuously learn from their history, experience and
environment, and adjust accordingly
• To be effective, organization has to learn and develop new capabilities on
continuous basis
• Sharing knowledge, experience and ideas are keys to achieving a learning
organization

Summary
• Organizations are organized systems of two or more persons to attain
specific goals of different natures
• Goal formulation is a vital and complex function of management.
There are three main approaches: top-down, bottom up and MBO.
Other approaches are Thompson and McEvens’s approach, and Cyert
and March’s approach
• Organization goals are dynamic concepts. Changes in goals take place
because of shifts in emphasis
• The perspective and thinking about organizations have changed
considerably over the time period: from mechanistic to open learning
systems

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