Organizational Behavior and Control Mechanisms in New Venture

Organizational Behavior and Control Mechanisms in New Venture Creation Prof. Alexander Settles

Introduction to OB • Define organizations of differing types and differing objectives. Normative and positive theories. • Division of labor, specialization, productivity, economies of scale and the problem of coordination (motivations/incentives and information). • Markets and organizations as alternative coordinating mechanisms. Contrasting market and employment contracts (incentives, risk sharing and information assets).

Introduction to OB • The market organizational contractual continuum. • Competitive markets, ‘real’ markets, long term contracts (fixed cost to cost plus), joint ventures, alliances, informal networks, franchising etc. • Coordination and role of: motivation/incentives, communication/ information/knowledge, bargaining power and authority, culture/ norms/trust/commitment, democratic process. • Introduction to the nature of Hierarchical organizations. • Vertical boundaries (make-buy) • Horizontal boundaries (Divisional, conglomerates etc). • Hierarchical structures (size, span, depth). • Ownership/governance.

Theories of boundaries • Transaction costs; assumptions, bounded rationality, opportunism, incomplete contracts; transactional characteristics, asset specificity, uncertainty, complexity, frequency. • Property rights theory. • Monopoly power, information knowledge and rents, competitive advantage. • Role of managerial objectives/motivation. • Role of legislation (national variations). • Ideology.

The evolution of organizations • Evolution of contracts. • Evolution of organizational types: peer groups, multifunctional; multi-divisional, conglomerates, Alliances, networks, long term (relational), contacting. • Centralized v decentralized organization (discretion).

Studying organizations • Organization, group and individual levels of study and their inter-relationship. • Contribution of statistical models and case studies. • Contribution of elementary game theory (one-shot and repeated). • Contribution of network (graph theoretic) models.

Game Theory

Organizations as contractually coordinated mechanisms • Taylor, standardization, rationalization and scientific management; “Fordism”. • Theories and critiques of bureaucracy. • Centralization, decentralization and discretion/incomplete contracts. • Organization as an algorithm. • Control loss, coordination loss.

Organizations as Incentive/ Motivationally coordinated mechanisms • Introduction to principal agent theory. • Team production and externalities. • Psychological models of motivation: Human relations; Human resource management; Group and team context (production); Motivational reactions to organizational design.

Organizations as authority/ power/coordinated mechanisms • • Nature of power. Authority and influence. Bargaining power. Sources of power. Power and participation/ decentralization.

Organizations as Information/ Knowledge distributively coordinated mechanisms • • Coordination and information (games). Theory of teams. Hidden information/action. Demand for information and participation.

Organizations as ‘Culturally’ coordinated mechanisms • Nature of culture. • Trust, leadership, sacrifice and commitment. • Social capital. • Corporate culture/ambient cultures. • National business systems.

Determinants of hierarchal structures (shape). • Contingency theory. • Population ecology/institutional theory. • Hierarchy (or hybrid organization) as an optimal mechanism – given operating environment - for combining: rules/contracts, incentives, authority, information, culture.

Corporate Governance • Ownership and control; participation and organizational democracy.

What is Organizational Behavior? • Organizational behavior (OB) is the study of: – Human behavior in organizational settings – The interface between human behavior and the organization – The organization itself

The Nature of Organizational Behavior

The Importance of Organizational Behavior • Organizations can have a powerful influence on our lives: – Most people are born and educated in organizations – Most people acquire most of their material possessions from organizations – Most people die as members of organizations – Many of our activities are regulated by governmental organizations – Most people spend most of their lives in organizations

Why Study OB? • Studying organizational behavior can clarify factors that affect how managers manage by: – Describing the complex human context of organizations – Defining the associated opportunities, problems, challenges, and issues – Isolating important aspects of the manager’s job – Offering specific perspectives on the human side of management

Why Study OB? (cont’d) • Studying OB helps managers understand: – The behaviors of others in the organization • Personal needs, motives, behaviors, feelings and career dynamics • Attitudinal processes, individual differences, group dynamics, inter group dynamics, organization culture, power, and political behavior – Interactions with people outside of the organization and other organizations – The environment, technology, and global issues

Organizational Behavior and the Management Process • Management Functions – – Planning Organizing Leading Controlling • Resources Used by Managers – – Human Financial Physical Information

Functions of Management Planning Determining an organization’s desired future position and the best means of getting there Organizing Designing jobs, grouping jobs into units, and establishing patterns of authority between jobs and units Leading Getting organizational members to work together toward the organization’s goals Controlling Monitoring and correcting the actions of the organization and its members to keep them directed toward their goals

Basic Managerial Functions

Important Managerial Roles

Critical Managerial Skills Technical Skills necessary to accomplish specific tasks within the organization Interpersonal Skills used to communicate with, understand, and motivate individuals and groups Conceptual Skills used in abstract thinking Diagnostic Skills to understand cause-effect relationships and to recognize optimal solutions to problems

Figure 1. 3 Managerial Skills at Different Organizational Levels

Contemporary Organizational Behavior • Characteristics of the Field – Interdisciplinary in focus – Descriptive in nature • Basic Concepts of the Field 1. Individual processes 2. Interpersonal processes 3. Organizational processes/characteristics

Contemporary Organizational Behavior Systems Perspective Contextual Perspectives on Organizational Behavior Situational Perspective Contingency Interactional

The Systems Perspective • System – An interrelated set of elements that function as a whole—inputs are combined/transformed by managers into outputs from the system. • Value of the Systems Perspective – Underscores the importance of an organization’s environment – Conceptualizes the flow and interaction of various elements of the organization.

The Situational Perspective • The Situational Perspective – Recognizes that most organizational situations and outcomes are influenced by other variables • The Universal Model – Presumes a direct cause-and-effect linkage between variables – Complexities of human behavior and organizational settings make universal conclusions virtually impossible

The Systems Approach to Organizations

Universal Versus Situational Approach

Interactionalism: People and Situations • Interactionalist Perspective – Focuses on how individuals and situations interact continuously to determine individuals’ behavior – Attempts to explain how people select, interpret, and change various situations.

The Interactionalist Perspective on Behavior in Organizations

Managing for Effectiveness • Managers work toward accomplishing the various goals (outcomes) that exist at specific levels in an organization: – Individual-level outcomes – Group-level outcomes – Organizational-level outcomes

Managing for Effectiveness

The Nature of Organization Structure • Organization – A goal-directed social entity with deliberate processes and systems • Organizational Goals – Objectives that management seeks to achieve in pursuing the firm’s purpose • Strategies – Specific action plans that enable the organization to achieve its goals and thus its purpose

The Nature of Organization Structure (cont’d) • Organization Structure – The system of task, reporting, and authority relationships within which an organization does its work – Purpose of structure is to order and coordinate the actions of employees to achieve organizational goals – “Structure follows strategy”

The Nature of Organization Structure (cont’d) • Organized Effort Premise – People can accomplish more by working together than they can separately – Proper coordination is needed to realize the potential gains from collective efforts • Analysis of Organizational Structures – Configuration (organization chart) – Operational characteristics – Responsibility and authority

Structural Configuration • Organization Chart – Describes the structure of an organization • Shows all people, positions, reporting relationships, and lines of formal communication • Depicts reporting relationships and work group memberships • Shows how positions and small work groups are combined into departments which make up the shape (configuration) of the organization • Basic Requirements of Structure – Division of labor – Coordination of divided tasks

Examples of Organization Charts

Structural Configuration (cont’d) • Division of Labor (Specialization) – The way the organization’s work is divided into different jobs to be done by different people – Organizations, in order to be successful, must have highly trained specialists who know their specific jobs very well • Coordinating the Divided Tasks – Mechanisms to help coordinate the divided tasks • Departmentalization • Span of control • Administrative hierarchy

Structural Configuration (cont’d) • Departmentalization – The manner in which divided tasks are combined and allocated to work groups – A consequence of the division of labor – Ways to departmentalize tasks: • Business function • Process • Product or service • Customer • Geography

Advantages and Disadvantages of Division of Labor Advantages Efficient use of labor Disadvantages Routine, repetitive jobs Reduced training costs Reduced job satisfaction Increased standardization and uniformity of output Decreased worker involvement and commitment Increased worker alienation Increased expertise Possible incompatibility with from repetition of tasks computerized manufacturing technologies

Structural Configuration (cont’d) • Departmentalization (cont’d) – Span of control (also span of management) • The number of people who report to a manager • The smaller the span of control the more a manager can maintain close control over workers and stay in contact with daily operations • Size is inversely related to the span of control

Departmentalization by Business Function and by Process

Departmentalization by Customer

Departmentalization by Customer and by Geographic Region

Mixed Departmentalization