Chapter 1: Organizations: Key Concepts

Introduction

The most important function of organizations is actually making people’s lives easier during their struggle in the modern world. That is why many services and products simplifying our daily lives are mostly offered by organizations. Organizations differ from each other in terms of their scales, structures, aims, working methods, products, and offerings. Some offer products and services at international level, while some of them serve only for the region you reside in. The organization theory is a scientific discipline that tries to grasp and explain these many various organizations surrounding us and our lives.

What is an Organization?

There are so many comprehensive definitions that emphasize different specifics of organizations. One of the most accepted, comprehensive and common definitions is the one made by C. I. Barnard, which argues that “organization is a system of consciously coordinated activities of two or more persons.”2 This very definition by Barnard is used commonly since it encompasses all organizations with different features. This definition increasingly emphasizes the coordination created among individuals. The common side of all organizations is to act in coordinated ways to reach their aims within a certain frame of aims. As two prestigious names in the field of organizational studies, Blau P.M. and Scott W.R.3 extend the scope of the definition above and utter these words: “The accomplishment of an objective requires collective effort, men set up an organization designed to coordinate the activities of many persons and to furnish incentives for others to join them for this purpose.”

In his Images of Organization, Gareth Morgan explains this diversity in the field of organization theory and describes different perspectives on the organizations using metaphors4. He identifies eight metaphors:

1. Organizations as Machines
2. Organizations as Organisms
3. Organizations as Brains
4. Organizations as Cultures
5. Organizations as Political Systems
6. Organizations as Psychic Prisons
7. Organizations as Flux and Transformation
8. Organizations as Instruments of Domination

Types of Organization

• Mutual Benefit Organization: Political parties, clubs, and professional organizations are examples of mutual benefit organizations. Individuals tend to participate in these organizations just to make use of their own benefits to the organization.
• Business Concerns: Business organizations are established with the aim of economic benefit. The fundamental problem of these organizations is operating efficiency and achievement of maximum gain at minimum cost for further survival and growth in competition with other organization
• Service Organizations: Many service organizations are formed not for profit but for offering services to customers in the relevant community. Educational institutions, hospitals, animal protection associations, environment protect associations and various non-profit organizations are examples of these service organizations. These organizations are generally funded by small fees, donations, grants, contributions by members, or government assistance. The main beneficiaries of non-profit organizations are customers and communities. Their main problem is the lack of professional management
• Commonwealth Organizations: These organizations, which are basically for social services, are formed to offer standard services for the majority of the population. The motivator of these organizations is not profit. Police offices, army forces, courts, fire services, and other public institutions are examples of these organizations. The beneficiaries of commonwealth organizations are ordinary people in general.

Classical Management School

Three important views representing this period are those of F. Taylor, H. Fayol, and M. Weber. The ideas of these three important organization theorists make up the foundation of today’s organization theories.

Scientific Management

F. Taylor is the founder of scientific management. In scientific management, the aim is to produce more through increasing efficiency. As a way to realize this aim, arrangements in the business level make up the main field of activity. The most focused aspect of these studies is business management and organization.

Max Weber and Bureaucracy

According to bureaucratic theory, if expanding and growing organizations do not desire to turn out to be inadequate, they must adhere to the ideal bureaucracy structure. The aspects of ideal bureaucracy theory can be summarized as the following six items: A well-defined hierarchy of authority, clear division of work, a system of rules covering the rights and duties of all employees, a system of procedures for dealing with the work situation, impersonality of interpersonal relationships, selection and promotion based on technical competence.

Modern Management Schools of Thought

Three great developments have contributed to the improvement of modern management and organization theories: improvements in system theory, behavioral sciences, and quantitative methods. Modern management theories consist of the two important ones: Systems approach to organization and contingency theory

Systems Approach Organization

This approach is the one that decides various communication and interaction areas between different units of modern organization and their environment and shows which way to go. The most important benefit of this approach is its consideration of the organization as an open system and tackling the problems in an integrated style.

Contingency Theory

The contingency theory that regards the organization as a system argues that only one ever-successful management and organization style is not possible. The success of organizational structures will change depending on the conditions. This theory especially focuses on conditions, organization’s environment, technology, size, and variables.

Dimensions of Organizational Design

Daft (2010)14 groups the dimensions of organization design into two basic categories. He sorts structural dimensions as formalization, specialization, the hierarchy of authority, centralization, professionalism and personnel ratios, while he labels contextual dimensions as size, technology, environment, goals and strategy, and culture

Performance and Outputs of Activities in Businesses

The main reason underlying the attempt to understand structural and contextual dimensions of organizations is to find the optimum way to deliver performance. Managers want to use the inputs in the most effective ways and transform them into outputs to gain the maximum avail. To this aim, they must design the organizational structure accordingly. A well-designed structure makes them manage their relationships with both their environment and internal relations successfully. The necessary attempt to deliver a higher performance will increase as the number of variables that influence the organization increases and thus finding the rightest method will get hardened. Performance generally means the level of work. Effective resource use, productivity, efficiency, profitability or the realization level of similar organizational aims reflect the performance level of a business. Performance is also the level of a work finished or outputs achieved according to certain goals. Organizational performance is the skill for reaching the organization’s aims using the scarce resources in effective and efficient ways and the consequence of an output or work after a certain period of time. Performance can also mean the degree of the realization of a business’s mission or aim. Some basic definitions are used to measure organizational performance and when they come together, they make up performance21. The first basic definition is that of productivity. Productivity is about the number of sources used for reaching organizational goals and it is the ratio of a certain production amount to factors used to achieve this amount

Productivity is a common performance criterion since it is practical and easy to use in many businesses. Another concept of performance is efficiency. Organizational efficiency means reaching and achieving organizational goals. According to this opinion, the more an organization reaches its aims set beforehand, the more it gets active. Organizations with high performance are those doing the right jobs at the right time.

Another important concept mostly confused with efficiency is the concept of effectiveness. Effectiveness is a dimension of performance that determines the level of achieving the aims. Organizational effectiveness indicates that how an organization satisfies the demands of various groups. Effectiveness means an evaluation of the usefulness of an organization’s work and how sources are used during this process and also the level of achieving the result that the organization aims to reach.

Globalization

Globalization is “the process by which geographic constraints on economic, social and cultural arrangements recede, thus increasing our global interdependence”22. It is not true for organizations to restrict themselves to a local environment in a global world. Global effects have reached such sizes that can influence local organizations. Intense competition, complexity, and uncertainty, fastchanging demands and expectations of customers, changing technologies threat the success of businesses while globalization provides various opportunities for them such as new markets and easy and cheap access to production factors.

Intense Competition

The success of organizations that want to provide a competitive advantage depends on the ability to perceive the change around them and adapt to it quickly. To succeed in the intense competition environment, organizations must decrease their cost of production, increase their quality and exceed high above customers’ expectations. Now, customers find more alternatives in global markets and tend to buy quality products by paying less. While competing intensely, technological infrastructure, education system, relations between public and private sector and economy policies mesh. Dynamic and competitive management strategies of companies in international competition environments increase their competition opportunities. The key to success in global competition is change and development. Change has many meanings such as improvement, growth and development, removal from stereotyped thought systems, higher productivity, and finding methods for efficiency. The motive behind change involves technological changes which are able to alter the structure of competition in the industry. Technological changes trigger economic, political and socio-cultural changes and make governments powerful.

Digitalization

In recent years, the concept “digital” has become a goal which businesses try hard to achieve yet cannot access fairly just like “innovation”. As digital transformation becomes important for businesses, the effects of this concept have begun to be seen in every sector unexceptionally and even in living spaces.

One of the most important digitalization factors that influence all organizations is Industry 4 concept, a digitalization process which for the first time won a name for itself in Hannover Fair of Germany in 2011 and began to be followed by the whole world. Industry 4.0 concept is generally associated with goals and expectations for high levels of productivity; however, innovations to be brought by Industry 4.0 to organizations will not be restricted to the abovementioned. New opportunities for the development of new products and processes in organizations will come to the fore. That is why expectations about Industry 4.0 are extensive and high. Via Industry 4.0, three main advantages such as market access rate, flexibility, and productivity are aimed for. With new technological factors, communication between artificial intelligence systems, cyber-physical systems, and objects are also aimed for at each step of production. The transformation is foreseen to take place not just in the industrial sector but in many different ones as well. Industry 4.0 defines the Fourth Industry Revolution, which is a new level in the organization and management of a whole value chain in lifecycle of products and production systems. This life-cycle focuses on customer demand that is being increasingly customized.

Innovation

Innovation was defined as the prime mover behind development by the German economist and political scientist Schumpeter. In his book written in 1911 and translated into English in 1934, he describes innovation as the application of a new production method to meet the demands of the market. According to Schumpeter, innovation has five basic indicators: new product development or improvements for the existing product, use of new industrial processes, opening new markets, development of new supply sources for raw materials and other inputs, and creation of new market structures in an industry. The concept of innovation expresses both a process and a product following this process in the literature. Innovation means changing, taking risks, stepping out of comfort zone. Businesses increase their productivity and respond to market’s demands through innovation. The sustainable development and spread of technology from developed countries to developing ones result from innovation. It is also generally accepted that innovation is one of the basic factors that provide the sustainable competitive advantage.

Ethical and Social Responsibility

The social responsibility of organizations is being accountable for individuals, communities, and environment influenced by their activities. If social effects of an organization’s activities are seriously harmful to some individuals or groups, this business may have to quit some of its decisions or use a certain part of its revenues to support social aims. Being socially responsible does not mean that a business must give up its profitability principle, nor does it mean that socially responsible organizations cannot have the same profit as socially less responsible ones. Social responsibility requires keeping a balance between profit and cost to have this profit.