1-1- 11

What Is Organizational Theory?

Organizational theory is the study of how organizations function and their relationships with their environment.

It involves components of design, structure,and culture.

The process of organizational design is used to diagnose and manage the structure and culture of organizations.

What Is Organizational Theory?

Copyright 2001 Prentice Hall

FIGURE 1.4

The Relationship among Organizational Theory and Organizational Structure, Culture, Design, and Change

Organizational Structure

The formal system of task andauthority relationships thatcontrols how people are tocooperate and use resources to achieve the organization's goals.

Organizational Design and Change

The process by which managers select and manage various dimensions and components of organizational structure and culture so that an organization can control the activities necessary to achieve its goals.

Organizational Culture

The set of shared values and norms that control organizational members’ interactions with each other and with people outside the organization.

Organizational Theory

The study of how organizations function and how they affect andare affected by the environment in which they operate.

1-8

1-1- 33

What Is Organizational Theory?

Why is organizational design so important?

• Affects a company’s ability to deal with contingencies (events that might occur)

• Can influence an organization’s abilityto be efficient and innovative

1-1- 44

What Is Organizational Theory?

Why is organizational design so important?

• Can be a source of competitive advantage, which is the ability of one company to outperform another by creating more value.

Competitive advantage springs from corecompetencies, managers’ skills and abilitiesin manufacturing, R&D, new technology, and organizational design.

1-1- 55

Can Tyson Fight ‘Chicken Fatigue’ Can Tyson Fight ‘Chicken Fatigue’ with Pork, Beef?with Pork, Beef?

Tyson acquired IBP in 2001 (#1 beef, #2 pork processor)Tyson acquired IBP in 2001 (#1 beef, #2 pork processor) Allowed Tyson to become less dependent on chickenAllowed Tyson to become less dependent on chicken Consolidation among supermarket chains (top five Consolidation among supermarket chains (top five

control 50%+ of sales, cf. 30% in mid-90s), control 50%+ of sales, cf. 30% in mid-90s), streamlining supply chains, spurring consolidation of streamlining supply chains, spurring consolidation of food manufacturersfood manufacturers

Meatpackers about two decades behind chicken Meatpackers about two decades behind chicken processors in marketing and product developmentprocessors in marketing and product development One of biggest consumer complaints about red meat is One of biggest consumer complaints about red meat is

lack of consistent quality (in large part due to scores of lack of consistent quality (in large part due to scores of different cattle breeds)different cattle breeds)

Most supermarkets employ their own butchers to Most supermarkets employ their own butchers to disassemble carcass parts they buy from meatpackersdisassemble carcass parts they buy from meatpackers

1-1- 66

Can Tyson Fight ‘Chicken Fatigue’ Can Tyson Fight ‘Chicken Fatigue’ with Pork, Beef?with Pork, Beef?

Ability to capitalize on acquisition will depend on ability to Ability to capitalize on acquisition will depend on ability to “Tyson-ize” beef, pork“Tyson-ize” beef, pork Secret to Tyson’s success is that quality of its meat doesn’t vary muchSecret to Tyson’s success is that quality of its meat doesn’t vary much

Co. owns hatcheries, feed mills, contracts with farmers to raise Co. owns hatcheries, feed mills, contracts with farmers to raise specially developed breed of chicken in climate-controlled sheds specially developed breed of chicken in climate-controlled sheds according to its specificationsaccording to its specifications

Takes just 11 weeks and 10 lbs. of grain to produce five-pound Takes just 11 weeks and 10 lbs. of grain to produce five-pound broiler ready for “processing”broiler ready for “processing”

IBP (now Tyson Fresh Meats) thought to be too big to vertically IBP (now Tyson Fresh Meats) thought to be too big to vertically integrateintegrate

To achieve better uniformity without trying to control entire process, To achieve better uniformity without trying to control entire process, Tyson planned to accelerate IBP’s strategy of doing more preparation Tyson planned to accelerate IBP’s strategy of doing more preparation work (marinating, pre-cooking, hand-trimming) (also eliminates labor work (marinating, pre-cooking, hand-trimming) (also eliminates labor costs in supermarket)costs in supermarket)

Source: Source: Wall Street JournalWall Street Journal, January 10, 2001., January 10, 2001.

1-1- 77

Tyson Robards KY ‘Poultry Tyson Robards KY ‘Poultry Complex’Complex’

Employs almost 1,200 people Employs almost 1,200 people Includes a hatchery, feed mill, processing plant, cold Includes a hatchery, feed mill, processing plant, cold

storage facility, and rendering plant (which converts storage facility, and rendering plant (which converts poultry by-products into ingredients for pet food)poultry by-products into ingredients for pet food)

Processing plant handles 1.25 million birds per week, Processing plant handles 1.25 million birds per week, producing more than seven million pounds of fresh producing more than seven million pounds of fresh productproduct

Chickens for the Robards complex are raised at 90 Chickens for the Robards complex are raised at 90 area poultry farmsarea poultry farms

Source: www.tyson.comSource: www.tyson.com

1-1- 88

Organizational Effectiveness

Managers can take one of three approaches to evaluate how an organization confrontsthese three tasks:

•External Resource Approach: Control

•Internal Systems Approach: Innovation

•Technical Approach: Efficiency

1-1- 99

Organizational EffectivenessTABLE 1-1 Approaches to Measuring Organizational Effectiveness

Goals to set to Approach Description measure effectiveness

External resource approach

Evaluates the organization’s ability to secure, manage, and control scarce and valued skills and resources

• Lower costs of inputs

• Obtain high-quality inputs of raw materials and employees

• Increase market share

• Increase stock price

• Gain support of stakeholders such as government or environmentalists

1-1- 1010

Organizational EffectivenessTABLE 1-1 Approaches to Measuring Organizational Effectiveness (continued)

Goals to set to Approach Description measure effectiveness

Internal systemsapproach

Evaluates the organization’s ability to be innovative and function quickly and responsively

• Cut decision-making time

• Increase rate of product innovation

• Increase coordination and motivation of employees

• Reduce conflict

• Reduce time to market

1-1- 1111

Organizational EffectivenessTABLE 1-1 Approaches to Measuring Organizational Effectiveness (continued)

Goals to set to Approach Description measure effectiveness

Technical approach Evaluates the organization’s ability to convert skills and resources into goods and services efficiently

• Increase product quality

• Reduce number of defects

• Reduce production costs

• Improve customer service

• Reduce delivery time to customer