Organizational Systems Theory - Essay Example

Organizational Systems Theory and Section # of Organizational Systems Theory Structural contingency theory was a major organization studies perspective in 1960-1970s, but has since faded away and other theories have taken its place. Many practitioners worked on this concept like Tom Burns, Joan Woodward, Paul Lawrence, and Jay Lorsch but Jay Galbraith provided the most appropriate concept in 1973. He states in his structural contingency theory that: There is no one best way to organize. Any way of organizing is not equally effective.[2] By implication of this theory the best way to organize is contingent on the environment. It emphasizes how a strong relationship between structure and environment increases organizational performance and survival chances. If environment is Placid, Predictable, Homogeneous, Stable and Resource Munificent then structural form is Mechanistic, Bureaucratic, Centralized and Clear Goals. But if environment is Turbulent, Uncertain, Complex, Unstable and Resource Scarce then structural form is Organic, Informal, Networked; Ambiguous Goals. Since organizations differ in the type of tasks they perform and environments they face, the appropriate organizational structure in each case is a function of four factors which are Organization’s size, technology, environment and strategy. The resulting structures can be formal, differentiated, vertical, horizontal, central and complex. [4] In the book Handbook of Media Management And Economics by Alan B. Albarran, Sylvia M. Chan-Olmsted, Michael O. Wirth, it is explained that the primary approach in organizational studies to the study of issues of organizational structure has been Structural Contingency theory. This theory describes the relationship between the organizational structures and performance outcomes. Grounded in assumptions of economic rationality this theory argues that organizations will adopt structures that maximize efficiency and optimize financial performance according to the specific contingencies that exists within the organizations’ marketing environments. Consequently there is no single organizational structure that will be equally effective for all companies. According to them Structural Contingency theory first emerged in organizational studies during the 1950s and generated a great deal of attention. This book states that under this theory, organizational structures are considered to include authority, reporting, decision and communication relationships and organizational rules, among other elements. The primary contingency factors that influence organizational structures include organizational scale and task uncertainty. Small organizations and those facing low levels of uncertainty in their environments are theorized to operate most efficiently with simple, centralized structures, whereas larger organizations and those dependent on creativity and innovation are expected to perform better with more decentralized structures. The theory also predicts that if an organization adopts a structure that is not optimal given its specific contingencies, it will either evolve toward a more efficient structure or fail. Thus, it shows that creativity and innovation are important aspects of the Structural Contingency theory only if the organizations are larger in size or face higher risk of uncertainty.[1] The study of intra-organizational relations has come of age in the past twenty years. Early work by Selznick (1949), Thompson and NcEven (1958), and Dill (1958) has been developed and extended theoretically and provided an explosion of new research. The theory of Intra-organizational relationships explain that due to the increasing complexity of the technological infrastructure, there is a critical need to build effective working relationships between various departments within the organization. Organizational agility requires flexible thinking and creativity that go well beyond process excellence. Building a framework of trust is the only way to retain such a culture. Leveraging worker capabilities requires a framework for collaboration that includes people, knowledge and innovation management systems. Increasingly, when knowledge workers seek an employment opportunity, they bring with them the know-how and expertise to get the job done. The focus for the organization is not as much to impart knowledge and train the workforce, as it is to tap into the knowledge that already exists. Therefore, trust becomes the fuel of knowledge workers because it motivates them and inspires them. Finally, all people are tied together by relationships, and, without trust, our relationships will be less than successful. In periods of high risk and uncertainty, enterprises can only maintain the status quo with the cooperation, trust and confidence of their people. With the right systems, tools, relationships and leadership behaviors, it is possible to accomplish great things with ordinary people, even in the most difficult times and under the most pressing constraints. Recognizing this fact, there are an increasingly large number of organizations emerging that depend on, and promote, relationships that work. Competitive, exploitive and unnecessarily antagonistic relationships are increasingly giving way to more cooperative, long term relationships.[3] The research “Customer Intimacy through Intra-Firm Relationship Governance” done by Matti Tuominen, Arto Rajala and Kristian Möller explains that ccommitment and trust are the key mediating factors in the management of close inter-firm relationships. One principle dominates customer intimacy: it is a profit over the lifetime of the relationship with a single customer, not a profit or loss on a single transaction. This research indicates that Resource Dependence theory (RDT) views inter-firm governance as a strategic response to conditions of uncertainty and dependence. From RDT point of view, the firms will seek to reduce uncertainty and manage dependence by purposely structuring their exchange relationships by means of establishing formal or semiformal links with other firms. The ongoing maintenance of inter-firm governance requires certain sub-processes to be carried out as follows: role specification, planning, nature and means of adjustments, monitoring processes, and incentive systems. Also, it proves that the more intensive the intra-firm linkages, the higher is the customer intimacy. It also explains that the firms confronted with uncertainties in the market and technology environments must make adaptations in their business logic and processes to realize customer value that, in turn, leads to customer intimacy and superior business performance. Hence, the interplay between intra- and inter-organizational relationships is expected to be affected by the nature of the environmental dynamism and the type of business logic adopted which an approach of Structural Contingency theory. These external and internal contingencies are suggested to take a role as antecedents and moderators regarding the interplay between the key constructs. Managers must address the dynamics of external environments, the company’s own systems and behavior, and, in particular, they must harness the power of technology to enhance human potential and organizational capabilities.[5] Based on the previous environmental literature, Pfeffer and Salancik developed resource dependence theory. Resource dependence theory is based on the concept that environments are the source of scarce resources and organizations are dependent on these finite resources for survival. A lack of control over these resources creates uncertainty for firms operating in that environment. Organizations must develop ways to exploit these resources, which are also being sought by other firms, in order to ensure their own survival. The characteristics of environments are concentration, the extent to which power and authority in the environment are widely dispersed; munificence, or the availability or scarcity of critical resources; and interconnectedness, the number and pattern of linkages, or connections, among organizations. Pfeffer and Salancik determined three factors that influenced the level of dependence organizations may have on particular resources. First, the overall importance of the resource to the firm is critical in determining the resource dependence of the firm. Second, the scarcity of the resource is also a factor. The more scarce a resource is, the more dependent the firm becomes. Finally, another factor influencing resource dependence is the competition between organizations for control of that resource. Together, all three of these factors act to influence the level of dependence that an organization has for a particular resource. This perspective contends that organizations can adapt and directly affect their chances of survival. Resource dependency is an open-system theory that states that all organizations exchange resources with the environment as a condition for survival. This dependence leads to power imbalance and control attempts. Especially if resources are critical and high in uncertainty, organizations must do something to reduce resource dependencies and reduce uncertainty. Following two tools are normally used to reduce this dependency and uncertainty: 1. Buffering: e.g. you may try to level demand fluctuation out by making your offerings more attractive during the low-season, and more expensive in the high-season. 2. Bridging: e.g. contracting If the resources are unique/ uncertain, you need to build a bridge , the kind of which should correspond to the level of uncertainty. Agreement, Joint Ventures and Acquisitions can be done to create this bridge. Anyhow, this theory is incomplete; its not entirely descriptive nor normative, particularly in terms of the dynamic aspects.[6] The Contingency approach is the outcome of research studies conducted by Tom Burns, G.W.Stalker, John Woodward, Lawrence, Lorsch and others. Through their analysis they co-related the structure of an organization to the surrounding environmental conditions. In the Fifties of the last century Burns and Stalker (both from UK) analyzed the environments and structures of several British and Scottish firms. In their pioneering work "Management of innovation" (1968) and they identified two types of organizational structures: Mechanistic Organic Against two categories of environment: Stable Dynamic Their studies revealed that mechanic structure was found to be common in organizations operating in stable environment, while the organizations operating in dynamic environment tended to be organic in structure. Overall Contingency theorists have found that three contingencies are particularly important in influencing an organization’s structure. These are: its size the technology it uses its operating environment.[2] The Structural Contingency theory relates that environmental change and uncertainty, work technology, and the size of a company are all identified as environmental factors impacting the effectiveness of different organizational forms. According to the contingency perspective, stable environments suggest mechanistic structures that emphasize centralization, formalization, standardization, and specialization to achieve efficiency and consistency. Certainty and predictability permit the use of policies, rules, and procedures to guide decision making for routine tasks and problems. Unstable environments suggest organic structures which emphasize decentralization to achieve flexibility and adaptability. Uncertainty and unpredictability require general problem solving methods for non-routine tasks and problems. Paul Lawrence and Jay Lorsch suggest that organizational units operating in differing environments develop different internal unit characteristics, and that the greater the internal differences, the greater the need for coordination between units. The difference between two theories is that one stresses upon the dependency of the organizational design on technology, size, and environment (Structural Contingency Theory) while other assumes that organizations are rational and adaptive; they also need resources from the environment and face constraints from the environment. References 1. Alan B. Albarran, Sylvia M. Chan-Olmsted, Michael O. Wirth (2005), Handbook of Media Management And Economics: Routledge 2. Contingency-Approach-to-Management. Retrieved March 10, 2008 Website: www.referenceforbusiness.com 3. Chun Wei Choo, Nick Bontis (2002), The Strategic Management of Intellectual Capital: Oxford University Press 4. Lawrence, R. P. and J. W. Lorsch (1967), Differentiation and Integration in Complex Organizations. Administrative Science Quarterly, 12, 1-47. 5. Matti Tuominen, Arto Rajala and Kristian Möller, Customer Intimacy through Intra-Firm Relationship Governance. Finland: Helsinki School of Economics and Business Administration 6. Pfeffer, J. and G. R. Salancik (1978), The External Control of Organizations, New York:Harper & Row. Read More