ORGANIZATION AND COMPONENTS OF ORGANIZATION
After studying this chapter, students should be able to understand the concepts
• Components of an Organization
This lecture discusses the organization, its types, and the components of organization.
An organization is a
managed system designed and operated to achieve a specific set of objectives.
We will also discuss the
components of an organization. Remember Managers operate in organizations.
An organization is not a random group of people
who come together by chance. They consciously
and formally establish it to accomplish certain goals
that its members would be unable to reach
individually. A manager's job is to achieve high
performance relative to the organization's
objectives. For example, a business organization has
objectives to (1) make a profit (2) furnish its
customers with goods and services; (3) provide an
income for its employees; and (4) increase the level
of satisfaction for everyone involved.
An organization is a social entity, which is goal
orients and deliberately structured. Organizations
are not functioning in isolated but are linked to
external dynamic environment. Virtually all
organization combines (1) Raw material, (2) Capital and (3) labor & knowledge
to produce Goods and
Types of organization
a) Formal: The part of the organization that has legitimacy
and official recognition.
b) Informal: The unofficial part of the organization.
B. Components of Organization:
1. Task: This component can be defined as a mission or purpose
of the existence of organization.
Every organization is having a purpose of
existence that is accomplished by
producing certain goods and services as
an output, which is termed as task.
2. People: The workforce or human part of
organization that performs different
operations in the organization.
3. Structure: Structure is the basic
arrangement of people in the
4. Technology: The intellectual and
mechanical processes used by an
organization to transform inputs into products or services.
Systematic Approach to Management:
A system is an entity with a purpose that has interdependent parts. The systems
approach suggests viewing
the organization as a system. All systems have four basic characteristics: 1)
they operate within an
environment; 2) they are composed of building blocks called elements, components,
or subsystems; 3) they
have a central purpose against which the organization’s efforts and subsystems
can be evaluated; and 4)
essential systems thinking places focus on the interrelatedness among the subsystems
and its environment.
Systematic management emphasized internal operations because managers were concerned
meeting the explosive growth in demand brought about by the Industrial Revolution.
In addition, managers
were free to focus on internal issues of efficiency, in part because the government
did not constrain
business practices significantly. Finally, labor was poorly organized. As a result,
many managers were
oriented more toward things than toward people.
The influence of the systematic management approach is clear in the following
description of one
organization's attempt to control its workers.
Open versus Closed Systems
A closed system does not interact with the outside environment. Although few
systems actually take this
form, some of the classical approaches treated organizations as closed systems.
The assumption was that if
managers improve internal processes, the organization would succeed. Clearly,
however, all organizations
are open systems, dependent on inputs from the outside world, such as raw materials,
human resources, and
capital, and output to the outside world that meet the market's needs for goods
Above figure illustrates the open-system perspective. The organizational system
requires inputs, which the
organization transforms into outputs, which are received by the external environment.
reacts to these outputs through a feedback loop, which then becomes an input
for the next cycle of the
system. The process continues to repeat itself for the life of the system.
As above Figure shows, a system is a set of interdependent parts that processes
inputs (such as raw
materials) into outputs (products). Business inputs typically known as resources
including human, physical,
financial etc resources. Most businesses use a variety of human, financial, physical,
resources. Manager’s function is to transform these resources into the outputs
of the business. Goods and
services are the outputs of the business. Some of the major components of the
include customers, competitors, suppliers, and investors.
Efficiency and Effectiveness
The closed-system focus of the classical theorists emphasized the internal efficiency
of the organization;
that is, these perspectives addressed only improvements to the transformation
process. Efficiency is the
ratio of outputs to inputs. Systems theory highlights another important dimension
effectiveness. Effectiveness is the degree to which the organization's outputs
correspond to the needs and
wants of the external environment. The external environment includes groups such
as customers, suppliers,
competitors, and regulatory agencies. Even a firm that has mastered Taylor's
techniques and become extremely efficient is vulnerable if, it does not consider
the effectiveness of its
Systems theory also emphasizes that an organization is one level in a series
of subsystems. For instance,
Pakistan Air force is a subsystem of our defense industry and the flight crews
are a subsystem of Pakistan
Air force. Again, systems theory points out that each subsystem is a component
of the whole and is
interdependent with other subsystems.
Systems theory also popularized the concept of synergy, which states that the
whole is greater than the sum
of its parts. For example, 3M have applied its core technology of adhesives to
many products, from
industrial sealers to Post-it notes. 3M has not had to start from scratch with
each product; its adhesives
expertise provides synergies across products.
Human Relation Approach
Another approach to management, human relations, developed during the early 1930s.
This approach aimed
at understanding how psychological and social processes interact work situation
to influence performance.
Human relations were the first major approach to emphasize informal work relationships
This approach owes much to other major schools of thought.
The Hawthorne Studies
Western Electric Company, a manufacturer of communications equipment, hired a
team of Harvard
researchers led by Elton Mayo and Fritz Roethlisberger. They were to investigate
the influence of physical
working conditions on workers' productivity and efficiency in one of the company's
Chicago. This research project, known as the Hawthorne Studies provided some
of the most interesting and
controversial results in the history of management.
The Hawthorne Studies were a series of experiments conducted from 1924 to 1932.
During the first stage
of the project (the Illumination Experiments), various working conditions, particularly
the lighting in the
factory, were altered to determine the effects of these changes on productivity.
The researchers found no
systematic relationship between the factory lighting and production levels. In
some cases, productivity
continued to increase even when the illumination was reduced to the level of
moonlight. The researchers
concluded that the workers performed and reacted differently because the researchers
were observing them.
This reaction is known as the Hawthorne Effect.
This conclusion led the researchers to believe productivity may be affected more
by psychological and social
factors than by physical or objective influences. With this thought in mind,
they initiated the other four
stages of the project. During these stages, the researchers performed various
work group experiments and
had extensive interviews with employees. Mayo and his team eventually concluded
that the informal work
group influenced productivity and employee behavior.
The Human Relations Viewpoint
Human relations proponents argued that managers should stress primarily employee
and communication. They believed social needs had precedence over economic needs.
management must gain the cooperation of the group and promote job satisfaction
and group norms
consistent with the goals of the organization.
Another noted contributor to the field of human relations was Abraham Maslow.
In 1943, Maslow
suggested that humans have five levels of needs. The most basic needs are the
physical needs for food,
water, and shelter; the most advanced need is for self-actualization, or personal
fulfillment. Maslow argued
that people try to satisfy their lower level needs and then progress upward to
the higher-level needs.
Managers can facilitate this process and achieve organizational goals by removing
obstacles and encouraging
behaviors that satisfy people's needs and organizational goals simultaneously.
Although the human relations approach generated research into leadership, job
attitudes, and group
dynamics, it drew heavy criticism. Critics believed the philosophy, while scientific
overemphasized the economic and formal aspects of the workplace; human relations
ignored the more
rational side of the worker and the important characteristics of the formal organization.
relations were a significant step in the development of management thought, because
it prompted managers
and researchers to consider the psychological and social factors that influence
The Challenges of today’s organization
Organizations are facing different challenges in
today’s environment like:
Only 20 years ago, few workers used fax machines
or e-mail, and computers occupied entire rooms,
not desktops. Advances in information and
communication technology have permanently
altered the workplace by changing the way
information is created, stored, used, and shared.
A diverse workforce refers to two or more groups,
each of whose members are identifiable and distinguishable based on demographic
or other characteristics
like gender, age group, education etc. Several barriers in dealing with diversity
prejudice, ethnocentrism, discrimination, tokenism, and gender-role stereotypes.
Stakeholders are those who have interests in the organization. Multiple stakeholders
for an organization
include the customers, suppliers, consumers, investors, lenders, etc.
An organization has to be responsive to the challenges and threats that it faces
from within the internal or
external environment. It requires quick responsiveness to meet the challenges
and opportunities arising out
of these changes.
Due to changing internal and external environment, rapid changes in the organization
has to be flexible to adjust to those changes.
Managers are faced with a myriad of challenges due to an array of environmental
factors when doing
business abroad. These managers must effectively plan, organize, lead, control,
and manage cultural
differences to be successful globally.
Diverse Workforce: A diverse workforce refers to two or more groups,
each of whose members are
identifiable and distinguishable
Effectiveness: A measure of the appropriateness of the goals chosen
(are these the right goals?),
and the degree to which they are achieved
Efficiency: Efficiency is the ratio of outputs to inputs
Organization: Organization is a managed system designed and operated
to achieve a specific
set of objectives.
Stakeholders: Stakeholders are those who have interests in the organization
Structure: Structure is the basic arrangement of people in the organization.
Synergy: This concept states that the whole is greater than the sum
of its parts
System: A system is an entity with a purpose that has interdependent
Task: This component can be defined as a mission or purpose of the