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Managing Innovation and Change Major Theoretical Perspectives (2) Dr. Tyge Payne (with Dr. Keith Brigham). Office : BA1015 Office Phone: (806) 742-1514 Email : [email protected] Our Approach to Organization Design. Organization design as an ongoing activity Short term and routine

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Office ba1015 office phone 806 742 1514 email tyge payne@ttu edu

Managing Innovation

and Change

Major Theoretical Perspectives (2)

Dr. Tyge Payne (with Dr. Keith Brigham)

Office: BA1015

Office Phone: (806) 742-1514

Email: [email protected]

Our approach to organization design
Our Approach to Organization Design

  • Organization design as an ongoing activity

    • Short term and routine

    • Long term and intermittent

  • Top down perspective (strategic approach)

  • Fit/Misfit perspective (multi-contingency)

    • Supported by other major theories

  • Organizational level of analysis

  • By studying organizations we can be better equipped to lead and manage them.

T. Payne

Our perspective of organizations
Our Perspective of Organizations

  • Open Systems

    • Stresses the complexity and variability of the individual organizational components and their loose connections.

    • Views system boundaries as somewhat amorphous and transitory.

    • Highlights the interdependence of the organization and its environment.

    • A pragmatic and applied orientation – supports ways to change and improve organizations rather than simply describing and understanding them.

  • (Multi-)Contingency Theory (i.e., fit/misfit).

    • Misfits are misalignments within organizational design components that can lead to deterioration in efficiency or effectiveness.

T. Payne

Major theories of organizations
Major Theories of Organizations

  • Contingency

  • Transaction Cost Economics

  • Agency

  • Configurations

  • Institutional

  • Population Ecology

  • Resource-Dependence

  • Social Capital

We will be referring back to these throughout the course.

T. Payne

Contingency Theory

  • Contingency Theory: Developed from the recognition that firms participating in the same industries or markets had different performance records. CT asks why?

  • Can be summarized as:

    • “The best way to organize depends on the nature of the environment to which the organization must relate” (Scott, 1981: 114)

    • “There is no one best or most appropriate way for all organizations to structure or organize. The best-fitting structure depends on the context that the organization faces” (e.g., environment, technology, goals/objectives, size, or culture).

  • Just as there is no one best way to organize, there may also be more than one equally good way to organize. (equifinality)

T. Payne


  • Contingency theory led the way to classification schemes, although concern was expressed about oversimplification.

    • Mintzberg (1979) – Simple Structure, Machine Bureaucracy, Professional Bureaucracy, Divisionalized, Adhocracy

  • However, classification schemes continue to be utilized but more so in a “fit” scenario and often utilizing multiple constructs in a configurations approach.

  • Constructions of reality through classification:

    • Typologies are constructed through theoretical means,

    • Taxonomies are empirically driven.

    • Most scholars use these terms interchangeably.

T. Payne

Transaction Cost

  • Transaction Cost Economics (TCE): Seeks to explain the existence and operation of organizations. It is mainly concerned with the governance of contractual relations.

  • Primary TCE (and Agency Theory) Assumptions:

    • Self-interest Seeking Individuals – Opportunism with Guile (Williamson, 1975)

    • Bounded Rationality – refers to the behavior that is intendedly rational but only limitedly so; a condition of limited cognitive competence to receive, store, retrieve and process information. All complex contracts are unavoidably incomplete because of bounds on rationality.

    • Information Asymmetry – Information isn’t evenly distributed among organizational participants.

T. Payne

Agency Theory

  • Agency:Agency theory examines the appropriate types of contracts and monitoring to ensure that owners can control the behavior of employees and reduce agency costs.

  • Agency theory regards the organization as a series of contractual relationships between owners and workers.

    • Owners (or principals) contract with managers and employees (or agents) to produce goods and services.

    • Agency costs are any counterproductive activities or behaviors due to shirking or moral hazard. Contracts are used to safeguard their interests.

  • The goal here is to reduce the amount of agency costs. In other words, find the most efficient arrangement of agent-principal relationships.

T. Payne

Institutional Theory

  • Institutional Theory:Emphasizes that organizations are open systems—strongly influenced by their environments—but that it is not only competitive and efficiency-based forces that are at work. Socially constructed belief and rule systems exercise enormous control over organizations—both how they are structured and how they carry out their work (Meyer & Rowan, 1977; Meyer & Scott, 1983).

  • Institutional Isomorphism is used to explain why organizations take the forms they do (DiMaggio & Powell, 1983):

    • Coercive forces (regulation & culture)

    • Mimetic forces (copy “successful” forms)

    • Normative forces (professionalization)

T. Payne

Isomorphism Mechanisms




Reasons to

become similar:








Political law,

rules, sanctions

Professionalism—certification, accreditation








Reengineering, benchmarking

Pollution controls, school regulations

Accounting standards, consultant training

T. Payne

Pop Ecology

  • Natural Selection:Population Ecology posits that environmental factors select those organizational characteristics that best fit the environment (Aldrich & Pfeffer, 1976; Hannan & Freeman, 1977; McKelvey, 1982)

  • Population ecology does not assume that changes are necessarily in the direction of more complex or better organizations…just toward a better fit with the environment.

  • Pop ecology is concerned with populations of organizations and the forms that specific organizations have that “fit” the environment. There are three stages to this model:

  • This theory tends to focus on birth or death of organizations.

Variation => Selection => Retention

T. Payne

Resource Dependence

  • R-D:Begins with the assumption that no organization is able to generate all the various resources that it needs to operate. (Pfeffer & Salancik, 1978). Thus, organizational decisions and actions are attempts to adapt to the environment.

  • Administrators manage their environments as well as their organizations, and the former activity may be as important or more important that the latter.

  • Implies Strategic Choice! R-D describes tactics employed by organizations to adapt to and modify their environments:

    • Bargaining, contracting, co-optation, hierarchical contracts, joint ventures, strategic alliances, mergers, associations, etc.

T. Payne

Networks / Social Capital

  • Social Capital:Refers to the goodwill gained from social relationships between people or collectives (i.e., groups, organizations, communities).

  • Social relationships can deliver such resources as:

    • Trust

    • Respect

    • Information

    • Knowledge

  • The structure of a network of relationships can lead to greater development of social capital.

    • Density, # of ties, structural holes…

    • Internal or External Ties

T. Payne