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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 : Our Approach to Organization Design. Organization design as an ongoing activity Short term and routine

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    1. Managing Innovation and Change Major Theoretical Perspectives (2) Dr. Tyge Payne (with Dr. Keith Brigham) Office: BA1015 Office Phone: (806) 742-1514 Email:

    2. 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

    3. Organization Design’s Role T. Payne

    4. 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

    5. 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

    6. 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

    7. Configurations • 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

    8. 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

    9. 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

    10. 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

    11. Isomorphism Mechanisms Mimetic Coercive Normative Reasons to become similar: Uncertainty Dependence Duty, obligation Events: Innovation visibility Political law, rules, sanctions Professionalism—certification, accreditation Social basis: Culturally supported Legal Moral Example: Reengineering, benchmarking Pollution controls, school regulations Accounting standards, consultant training T. Payne

    12. 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

    13. 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

    14. 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