After studying this chapter, students should be able to understand the concepts about:

• Organization

• 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

Services.

a) Formal: The part of the organization that has legitimacy and official recognition.

b) Informal: The unofficial part of the organization.

1. Task

2. People

3. Structure

4. Technology

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

organization.

4. Technology: The intellectual and

mechanical processes used by an

organization to transform inputs into products or services.

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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 primarily with

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.

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 and services.

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. The 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, and informational

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 external environment

include customers, competitors, suppliers, and investors.

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 for managers:

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 scientific management

techniques and become extremely efficient is vulnerable if, it does not consider the effectiveness of its

output

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.

Another approach to management, human relations, developed during the early 1930s. This approach aimed

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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 and worker

satisfaction.

This approach owes much to other major schools of thought.

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 factories outside

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.

Human relations proponents argued that managers should stress primarily employee welfare, motivation,

and communication. They believed social needs had precedence over economic needs. Therefore,

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 management

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. However, human

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 performance.

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, 30

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 include stereotyping,

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 occur. 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 parts

Task: This component can be defined as a mission or purpose of the existence of

organization