BBA Principles management Modern Organisation Theory Study Material Notes

BBA Principles management Modern Organisation Theory Study Material Notes: Subsystem in Organisation Systems approach of organization la design Factors affecting organization structures environment mechanistic system Modern organization theory contingency approach organic system strategy structure relationship Technology size Discussion question long Answer Questions Short Answer Questions ( Most Important Notes for Students )

MCom I Semester Human Resource Policies Practices Study Material

MODERN ORGANISATION THEORY: SYSTEMS APPROACH

Modem organisation theory is a sophisticated and scientific way of explaining a complex organisation. This theory is comparatively systematic and highly constructive. It is not an Instantaneous or overnight development but it is a composite representation of various contributions from different disciplines for more than two decades. Modern organisation theory can be understood in two approaches, though both of them are interrelated. These are systems approach and contingency approach.

Before the emergence of contingency approach in management, systems approach was treated to be the modern approach. Many of the writers have treated modern organisation and systems approach of organisational designs as synonymous. For example, Scott observes that:

organisation is to study it as a system. -10 Modern organisation theory, as a systems approach, is an integrative one which considers the organisation in its totality. The study of system must rely on a method of analysis involving the simultaneous variations of mutually dependent variables. This is what systems approach of organisation theory offers. The concept and implications of systems approach to management has been presented in Chapter 2. Here we are presenting the relevant aspects of systems approach for organisational design. These are subsystems in the organisation and their linking and structural arrangement.

Subsystems in Organisation

Every system has subsystems which are interrelated to constitute system as entity. Since the organisation is a system, it contains various subsystems. Each subsystem is identified by certain objectives, processes, roles, structures, and norms of conduct. The various subsystems of the organisation constitute the mutually dependent parts. These subsystems interact and through interactions create new patterns of behaviour that are separate from but related to the pattern specified by the original system. This is known as emerged behaviour. Since variables are interdependent, the true influence of altering one aspect of the system cannot be determined by varying It alone. Similarly, when any of the subsystem fails to function properly, the impact on other subsystems is immediate and aflects the total organisation.

In an organisation system, there are various ways of classifying subsystems. For example, each unit of the organisation is a subsystem. There is another way of classifying subsystems which may be found in each functional unit. Accordingly, there are various subsystems in the organisation and have been classified in different ways. For example, Seiler has identified four components in an organisation system: human inputs. technological inputs, organisational inputs, and social structure and norms.” Kast and Rosenzweig have identified five subsystems: goals and value subsystem, psychological subsystem, technical subsystem, structural subsystem, and managerial subsystem,Carzo and Yanouzas have identified three subsystems: technical subsystem, social subsystem, and power subsystem. The totality of these subsystems with their interconnections makes up the system of organisation. However, within these subsystems, managerial subsystem should also be added so that managerial aspect is given due emphasis in designing the organisation structure.

1 Technical Subsystem. Technical subsystem is a vehicle for conduct of work in the organisation. It refers to the knowledge required for the performance of tasks, including the techniques used in the transformation of inputs into outputs. The basic component of the technical subsystem is a group of tasks of activities that can be performed by an individual. In performing the task, the individual has to play a role involving decision making. communication, and other actions which relate him with other parts of the organisation. Behaviour in the technical subsystem is governed by rules, procedures, policies, and other prescriptions. The basic purpose of the behaviour regulation is to make sure that jobs are performed as planned and to stabilise behaviour so that organisation’s members may develop reasonable expectations of others’ work behaviour in the organisation.

Technical subsystem, thus, constitutes the formal arrangement of the functions, relationships, and behaviour. However, behaviour in the organisation is not explained fully by the technical subsystem alone because there is a fundamental conflict between individual and the organisation system resulting from the demand made by the system and the individual expectancies regarding the work he has to perform. Thus, individual behaviour is modified by the existence of social subsystem. Unless this aspect is taken into account. behaviour cannot be predicted properly.

2. Social Subsystem. Every organisation has a social subsystem which is composed of individuals and groups in interaction. When people are set to perform their tasks, they develop some sort of informal relationships. These relationships are not patterned on formal basis but are different. Because of these informal relationships, there may be modification of expectancies of behaviour. The informal organisation expects certain norms of behaviour from its members and individuals have expectancies of psychological satisfaction they hope to derive from association with others on the job. Both these expectancies interact resulting in individuals modifying their behaviour according to group norms and the group modifying what it expects of individuals because of the impact of their personality factors on group norms.

3. Power Subsystem. Every organisation has a power subsystem and peop! organisation elaborate their behaviour through the power relationship. Power is one sa to influence others to achieve desired results. Power distribution in the organisation 15 both formal and informal. That is why some people are more powerful in the organisa and some people are powerless in spite of occupying the similar power centres. Power subsystem is important to transform a decision into action in the organisation. Often there is hierarchy of power centres in the organisation because people aspiring for power have varying degrees of success as they have varying degrees of control on the means by which the power can be acquired such as formal position, job importance, expertise, personal characteristics, and coalition of individuals in the organisation.

4. Managerial Subsystem. When organisational units are arranged and operated as a system, each subsystem is viewed as a distinct entity and its relationship or contribution to the next level in the hierarchical structure is programmed and measured, but always in consideration of total system. Since organisations are deliberate and purposive creations, their management should lead towards the realisation of their objectives. Management of a system involves two processess: operation and review and control. Operation refers to conversion of inputs into outputs, commonly known as transformation or conversion process. Inputs may be in the form of information, materials, and energy. These inputs are allocated according to plan. However, the distribution of these inputs is also affected by social subsystem and power subsystem, more by the latter one. Operation of a system requires some sort of review and control to make it sure that it is going as it has been planned. If there is any discrepancy, this is overcome so that results are as planned.

Since an organisation has various subsystems, these should be linked properly so that the organisation can work as an entity. The way an organisation moves towards its equilibrium depends on the functional connectedness of its various parts. Successful working of the whole system requires two conditions: (1) enough connectedness among various parts of the subsystems so that operation of a subsystem can activate another and contributions of all can contribute to the whole: (10) enough separation of the subsystems so that some specialisation of functions is possible and equilibrium can be achieved in the system as a whole. Various parts of the organisation are interlinked by certain activities known as linking process. Basically there are three linking processes: communication. decision, and balance. Communication as linking process evokes the activation in various parts of the organisation. It also works as control and coordination mechanism linking the various decision centres in the organisation so as to synchronise their functioning. Various parts of the organisation interact among themselves through communication. The second linking process is decision which refers to selection of an alternative based on some criteria. Thus, the basic criteria of decision making provide uniformity in the working of various subsystems. The third process balance refers to an equilibrium mechanism whereby various parts of the organisation are maintained in a harmonious structured relationship to each other. These three interlinking processes taken together will affect the functioning of individual subsystems as well as of the whole system.

Systems Approach of Organisational Design

There are various implications of systems approach in management including organisational design. Systems approach of modern organisation theory has suggested three aspects relevant to design of organisation structure. These are modern organisational models, lateral relationships, and cybernetics.

1 Modern Organisational Models. Systems approach of organisational design recognise the problems involved in managing large and complex organisations. Therefore, it has replaced the simpler classical and neoclassical models because they have been too inadequate to solve the problems of today’s organisations. The approach recognises the need for flexibility and adaptability of organisation structure and various new models have been suggested such as project organisation, matrix organisation, task force, etc. The basic value of these organisation structures is that they are able to cope up with environmental dynamics very easily. Various implications and functioning of these structure have been discussed in a separate chapter.

2. Lateral Relationships. Systems approach suggests emphasis on lateral relationships among people in the organisation. This emphasis is in contrast to vertical relationships emphasised by classical theory and horizontal relationships emphasised by neoclassical theory. While both these relationships are important for the organisational functioning. lateral relationships achieve coordination more effectively by eliminating the hierarchical control. In modern organisational designs, people are not exactly placed in superior subordinate relationships and, therefore, exercise of authority for controlling behaviour is not effective. Organisational processes in such cases are quite different which will be discussed along with forms of modern organisation structures.

3. Cybernetics. Cybernetics is a crucial aspect of systems theory. Cybernetics is an important concept for the control function. The word ‘cybernetics’ stems from the Greek ‘kybernetes’, or ‘helmsman,’ and relates to the connotation direction of’. Cybernetics involves communication and control. It is concerned with information flow in complex systems. Although cybernetics has been applied primarily to mechanistic-engineering problems, its model of feedback and regulation has significance for social systems also. In the organisational context, it is interested in the problems of regulation and control in complex, probabilistic, self-regulatory systems of the organisation. Since it emphasises regulation in complex system, it has become a model for thinking in regard to the application of advanced information technology to the control of complex organisations. This is why organisations using sophisticated management information systems adopt cybernetic model as an integral part of their model of operation.

Systems approach of modern organisation theory has given new thinking in the management and design of an organisation. Its conceptual framework is much above than other approaches. However, it suffers from the basic limitations of it being too abstract and complex as discussed in Chapter

4. Moreover, various organisational forms given by this approach are suitable only for large organisations and are not applicable for the smaller organisations. Therefore, this theory cannot be said to be a unified one.

MODERN ORGANISATION THEORY: CONTINGENCY APPROACH

Another approach of modern organisation theory is contingency approach. As discussed in Chapter 2, contingency approach is an extension of systems approach. Contingency approach of organisational design suggests that ‘structure of an organisation should be tailor-made; search for a typical structure applicable to all organisations is futile’. Thus. the basic implication of this approach is that there cannot be a particular model or organisation structure which can be applied in all situations. Rather, an appropriate organisation structure is one with appropriate internal states and process of organisation contingent upon external environment and internal needs. Therefore, while designing the structure, various factors affecting it should be taken into consideration

Factors Affecting Organisation Structure

There are various factors that determine the effectiveness of an organisa These are organisations:

1 Environment.

2. Strategy

3. Technology

4. Size, and

5. People.

ENVIRONMENT

An organisation is a system that works within a broader framework of an environment, The organisation interacts continuously with its environment; it is affected by the environment and also affects the environment. In this interaction, the environment determines the various organisational processes including its structure. Organisations, like men or animals, must either adjust to the environment or perish. An organisation that does not adapt itself to the environment may vanish from the scene. The adjustment between an organisation and its environment is affected by the type of organisation structure. Thus, an appropriate organisation structure is one which is in accordance with the needs of its environment. We have seen in Chapter 4 that two characteristics of the environment are important for the organisation environmental complexity and variability. These two factors taken together affect the design of organisation structure in terms of it being able to:

1 monitor and process information about the environment,

2. increase organisation’s ability to pre-plan,

3. increase its flexibility to adapt, and

4. decrease the level of performance required for continued viability.

Various research studies are available to indicate the effect of environment on organisation structure. In 1960s, Burns and Stalker studied 20 electronics firms in Great Britain and revealed a linkage between formal organisation and its environment. As a result of their study, the researchers have differentiated two systems of management suitable for two types of environments. These are mechanistic system suitable for stable environment. and organic system suitable for dynamic environment.” The development of two systems in various organisations is the conclusive proof of the effect of environment on the management and organisation structure, with environment acting as a major determinant.

STRATEGY

Though the choice of a strategy by the organisation is largely determined by the environmen other factors particularly organisation’s strengths and weaknesses and personal facto also affect this choice. There is close relationship between an organisation’s strategy and its structure. The understanding of this relationship is important so that in implementing the strategy, the organisation structure is designed according to the needs of the strategy The relationship between strategy and structure can be thought in terms of u s e structure for strategy implementation because structure is a means to an end and not an end in itself. The most appropriate end is the objectives for which the organisation exists in the first place, as revealed by its strategy. Without coordination between strategy and structure, the most likely outcomes are confusion, misdirection, and splintered efforts within the organisation. Research evidence also suggests that structure follows strategy. According to Chandler, changes in organisation’s strategy bring about new administrative problems which, in turn, require a new refashioned structure if the new strategy is to be successfully implemented. 16 Chandler has found that structure tends to follow the growth strategy of the organisations but not until inefficiency and internal operating problems provoke a structural adjustment. Thus, organisational actions proceed in a particular sequence: new strategy creation, emergence of new administrative problems, a decline in profitability and performance, a shift to a more appropriate organisation structure, then recovery to improved strategy execution and more profit and performance. However, this sequence can be broken if suitable organisation structure is conceived at the starting point of strategy implementation.

Modern Organisation Theory

Strategy-Structure Relationship

The relationship between strategy and structure, however, should not be viewed merely as one-way traffic, rather it should be viewed as two-way traffic. On the one hand, the structure should be according to the need of the strategy so that it is implemented effectively. On the other hand, structure of the organisation may play a critical role in influencing its choice of strategy. Recognition of this two-way interaction between strategy and structure is crucial for a complete understanding of the criteria which underlie structural design. It becomes obvious that a top management perspective in structural design is necessary when one understands that such a design is a result of overall strategy, and the success of the strategy is also dependent on that design. The interdependence of structure and strategy can be summarised by quoting Cannon who has derived from his long experience of his consulting firms in devising strategies and organising companies. He observes:

The strategy-structure relationship can be analysed by taking stages of organisational growth because at each stage of the growth, types of product/market, size of the of product/market, size of the organisation and consequently managerial problems duer. Deriving his conclusions based on the rowth of organisations in US economy, Chandler has concluded that evolution of the organisations follows the following pattern:18

1 initial expansion and accumulation of resources,

2. rationalisation of the use of resources,

3. expansion into new products and business lines, and

4. development of a new organisation structure to enable effective mobilisation and utilisation of resources to meet short-term market demand and long-term market trends.

SIZE

The concept of size of organisations is used in different ways depending on the measurement criteria used. Thus, size is measured in terms of number of employees, scale of operations. and amount of investment. However, it has been found that in most of the cases, there is a positive correlation among these three criteria. Therefore, an organisation which is considered as large on the basis of one criterion is large on other criteria too. It implies that the number of employees increases with scale of operation which, in turn, necessitates large amount of investment.

Though various research studies have not given conclusive proof about the relationship between size of an organisation and its structure, some studies have indicated that ste allects some structural characteristics. These characteristics are as follows:

1 The size of an organisation influences its coordination, direction, control, and reporting systems and, hence, organisation structure. The complexity of organisation structure increases with the increase in size; a small organisation can work effectively with a simple structure like line organisation structure while a large organisation requires much more complex structure, may be in the form of functional or divisional organisation structure.

2. In a large organisation, various supporting functions, known as staff functions, like human resource management, finance functions, legal functions, etc. have to be! organised in different departments. The organisation has to devise a structure that enables the organisation’s main functions, known as line functions, like production and marketing to take the advantage of speciality of staff functions. Therefore, the organisation structure requires horizontal and lateral communication besides hierarchical communication either upward or downward. In a small organisation, no such problem arises.

3. The size of an organisation affects the degree of formalisation of various processes like communication, authority and responsibility delegation, control system, decision-making process, etc. In a large organisation, degree of formalisation is high while in a small organisation, all these processes are conducted informally. Therefore, the large organisation has to make provision for the appropriate degree of formalisation.

PEOPLE

The organisation structure is the result of conscious actions on the part of people who are engaged in the organisation. As such, the form of organisation structure is expected to reflect the thinking and way of working of its farmers and participants. The form of organisation structure is a major source of satisfaction or dissatisfaction for people. It implies that a suitable organisation structure is one which is able to provide satisfaction to framers as well as participants. Thus, to arrive at an appropriate structure, features of both, framers and participants, relevant to design of the structure should be analysed. Characteristics of Framers. The design of an organisation structure is influenced greatly by the characteristics of its framers, mostly top-level managers, who are collectively known as top management. These managers perceive the problems of the organisation in a unique way depending on their background, knowledge, experience, and values. In the light of this, they decide such crucial issues as the type of industry the organisation should go, the basis on which the organisation will face competition (price, quality, diversity of product-line, service, etc.). and structure of top management including that for the whole organisation. Thus, following characteristics of top management determine the form of organisation structure:

1 Top management philosophy about the degree of freedom and autonomy required for people in the organisation affects its structure. If this philosophy is oriented towards theory X (proposed by McGregor), the structure is likely to be centralised with rigid system of control. On the other hand, if this philosophy is oriented towards theory y the structure is likely to be decentralised with more autonomy to people and less rigid control.

2. Top management approach to interact with the organis influences the form of organisation structure. If top management an Structure. Il top management approach is reactive wants to adjust to environmental conditions, the structure is likely to If top management approach is proactive to environmental changes, it tends to scan environmental forces regularly and acts a regularly and acts as an agent of im benefits of environmental changes. In this case, the change to reap maximum benefits of environmental chand structure will be closer to organic-adaptive.

Characteristics of Participants. People want to satisfy their needs while working in an organisation. There are several organisational factors which affect people’s need satisfaction: organisation structure is one of these. However, while taking into consideration need satisfaction of people in designing structure, the basic problem is that individuals differ resulting in differences in their need patterns. This problem can be overcome, to some extent, by grouping the people in some broad categories in which need patterns are likely to be less different. These categories are skilled/unskilled and professional/non-professional.

A particular organisation structure is not suitable for skilled/unskilled persons or professionals/non-professionals. Skilled and professional personnel have need for greater autonomy and participation in decision making, at least, on the matters which are directly concerned with their work. With the result, a flexible structure suits them. On the other hand, unskilled and non-professional people feel uneasiness while working in a flexible structure as it lacks clarity which they want.

Now some conclusions may be drawn about the type of structure that an organisation should follow. It can be suggested that structure is a result of several operating forces at the workplace. A successful structure is one which integrates these forces. Thus, what might be a suitable structure for one organisation may not be suitable for another organisation even in the same industry. Rather the suitability will be determined by the satisfaction of the requirements of various forces-environment, strategy, technology, size, and people, and these conditions are likely to vary from organisation to organisation.

Case: Action Technology Limited

Action Technology Limited (ATL), a software developement company, was promoted by present managing director G.R. Vikas. Vikas almost hates bureaucracy and believes or people at the workplace. There are about 450 employees with the company. All the employees are free to come to office at their own convenient time. Similarly, they can leave the onlice at any time and can work up to any time including past mid-night. The local is that an employee should work only at that time when he feels that he is the most productive. Workplace remains open for twently-four hours. There are no set policies regarding various types of leave like sick leave, paid holidays, or any other leave. Vikas believes that fixing a fixed number of days for sick leave is arbitrary because an employee may require more number of days or not a single day as sick leave. While hours of work and leave policies are quite flexible, employees frequently put in at least 50 hours a week. In addition, regardless of number of hours worked, every employee is required to be accessible via e-mail, cell phone, instant messaging, or laptop.

Every employee sets his weekly and monthly production target in consultation with management. Every employee is given plenty of autonomy to achieve the target and his performance is measured in terms of this target. Those who are on target achievers are counselled to improve themselves. On non-improvement, services of non-achievers are terminated. In one year, about 6 per cent of non-achievers were fired. ATL is doing quite well with about 33 per cent annual growth rate with commensurate profitability.

In the process of selecting employees, care is taken that only those candidates are selected who believe in autonomy and have sufficient internal motivation to get the things done. They are trained to imbibe company’s work culture. At the interview level, applicants are encouraged to ask any question about the company and its work pattern.

QUESTIONS

1 What kind of approach has been adopted by ATL in designing its structure?

2. Do you think whether this pattern will remain effective if the company grows larger?

Modern Organisation Theory