Organizational Theory

"As with all theories, we can learn something from agency theory and transaction-costs economics, since they emphasize something others hide. But as with all theories, they also distort; in fact, I will argue that their distortions outweigh the value of what they highlight."

"Agency theory argues that in the modern corporation, in which share ownership is widely held, managerial actions depart from those required to maximise shareholder returns (Berle and Means 1932; Pratt and Zeckhauser 1985). In agency theory terms, the owners are principals and the managers are agents and there is an agency loss which is the extent to which returns to the residual claimants, the owners, fall below what they would be if the principals, the owners, exercised direct control of the corporation (Jensen and Meckling 1976). Agency theory specifies mechanisms which reduce agency loss (Eisenhardt 1989). These include incentive schemes for managers which reward them financially for maximising shareholder interests. Such schemes typically include plans whereby senior executives obtain shares, perhaps at a reduced price, thus aligning financial interests of executives with those of shareholders (Jensen and Meckling 1976). Other similar schemes tie executive compensation and levels of benefits to shareholders returns and have part of executive compensation deferred to the future to reward long-run value maximisation of the corporation and deter short-run executive action which harms corporate value."

"Around 1958, I became aware of H.A. Simon's seminal papers on bounded rationality and was immediately convinced by his arguments. I tried to construct a theory of boundedly rational multigoal decision making. Together with Heinz Sauermann, I worked out an "aspiration adaptation theory of the firm" which was published as a journal article in 1962... More and more I came to the conclusion that purely speculative approaches like that of our paper of 1962 are of limited value. The structure of boundedly rational economic behavior cannot be invented in the armchair, it must be explored experimentally."

"Edith Penrose has been one of the most significant economists of the second part of the twentieth century. Her contribution to the theory of the firm has reinvented and productively developed the classical tradition in economics. It has informed the currently dominant resource/knowledge-based theory of the firm. Penrose's contribution, however, extends to a great variety of areas, to include industry organization, strategic management, international business, human resource management, economics of innovation and technological change, history, methodology, macroeconomics, and much more."

"I consider myself a mainstream researcher in the field of business policy, and the ideas I want to describe in this paper concern the foundations of a theory of business strategy that is rooted in economics. But is such a paper, whatever its merits, really appropriate at a conference entitled 'Non-traditional Approaches to Policy Research'? Surprisingly, it is. The use of economic theory to model and explicate business strategy, as it is understood within the field of business policy, is distinctly non-traditional."

"BEHAVIORAL THEORIES OF THE FIRM: A turn from structure to internal processes was the theme of authors such as Richard Cyert and James March, Daniel Katz and Robert Kahn, and Karl Weick. Cyert, an economist, and March, a psychologist, emphasized internal competition for scarce resources, interest groups forming coalitions, conflict resolution, organizational learning, and among other concepts, the adaptive processes of decision making and performance feedback. Psychologists Katz and Kahn emphasized organizational roles, role conflict and ambiguity, the organization as an open input-output system, and circumstances when the hierarchy was preferable to participative styles. Weick, another psychologist, emphasized the organizing process rather than the organizational product and suggested that actions precede goals (goals are retrospective), that individual behaviors are interlocking, and so on."

"Outside the firm, price movements direct production, which is co-ordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur-coordinator, who directs production. It is clear that these are alternative methods of coordinating production. Yet, having regard to the fact that, if production is regulated by price movements, production could be carried on without any organization at all might we ask, why is there any organization?"

"[The decisionmaking role of the firm has progressed from the neoclassical standpoint of profit maximization to sales maximization, utility maximization, and satisficing. From the Operation Research point of view] ...the ideal picture is that someone, presumable the firm that hires the operations researcher, hands him, on a silver platter, an objective function. By talking to the engineers, or by looking into a few scientific laws, he determines the policy alternatives available and also the model"

"It is probable that when future historians of economic thought look back over this century, the thirties will appear as an era of rapid development in economic theory. Not only has there been unusual activity in monetary theory, theory of value. but extensive transformations have also been made in the basic theory of value. The outstanding publications in this field are, of course, Joan Robinson's Theory of Imperfect Competition and Chamberlin's Theory of Monopolistic Competition, the first produced in Cambridge, England, and the second in Cambridge, Massachusetts. These volumes mark the explicit recognition of the theory of the firm as an integral division of economic analysis upon which rests the whole fabric of equilibrium theory. General equilibrium is nothing more than the problem of the interaction of individual economic organisms, under various conditions and assumptions; as a necessary preliminary to its solution, an adequate theory of the individual organism itself is necessary."

"We believe that, in order to understand contemporary economic decision making, we need to supplement the study of market factors with an examination of the internal operation of the firm – to study the effects of organizational structure and conventional practice on the developments of goals, the formation of expectations, and the execution of choices."

"The relationship of agency is one of the oldest and commonest codified codes of social interaction. We will say that an agency relationship has arisen between two (or more) parties when one, designated as the agent, acts for the other, designated the principal, in a particular domain of decision problems. Examples of agency are universal."

"The purpose of this book is to show how economic analysis can be used in formulating business policies. It is therefore a departure from the main stream of economic writings on the theory of the firm, much of which is too simple in its assumptions and too complicated in its logical development to be managerially useful. The big gap between the problems of logic that intrigue economic theorists and the problems of policy that plague practical management needs to be bridged in order to give executives access to the practical contributions that economic thinking can make to top-management policies."

"All but one of those just mentioned was a psychologist by education, so it should not be surprising that their view of organization theory emphasizes internal processes and resembles the micro approach of organizational behavior. Another group of theorists, all but one educated as a sociologist, viewed organizations as a product of macro environmental forces. These behavioralists were Jeffrey Pfeffer and Gerald Salancik, Michael Hannan and John Freeman, and John Meyer and Richard Scott. Pfeffer (the only nonsociologist) and Salancik presented a resource-dependent theory that postulates that organizations require support from their external environment and can only survive to the extent that this support is forthcoming. Managers form coalitions to gather support in an open system of external relationships in which there are constraints that create either a munificent or scarce resource situation. Hannan and Freeman’s organizational ecology theory offers the idea that organizational survival is a process of adaptation and success, or fail to adapt and exit. The authors recognized the Darwinian nature of their theory, but have used it to study organizational populations such as labor unions and newspapers for population entries, adaptation, and mortality. The neo-institutional theory of Meyer and Scott (and others) holds that organizational environments are shaped by societal expectations that provide legitimacy to an organization’s existence. By conforming to cultural rules, such as custom or law, formal organizations are able to take on the prevailing view of society."

"Every piece of data suggests that workplaces are in dire shape and there is low levels of trust in leaders. For instance, data on employee engagement from Gallup show that worldwide only about 13% of employees report being engaged with their work, and in the U.S., the number is barely higher at 20%. Job satisfaction has declined almost linearly since 1987 to the present. The Edelman Trust index indicates that the public at large has low trust in leaders, while other surveys show that employees do not expect their own leaders to make ethical decisions or to consistently tell them the truth about difficult situations."

"Until the mid-1970s, the prominent approach in organization and management theory emphasized adaptive change in organizations. In this view, as environments change, leaders or dominant coalitions in organizations alter appropriate organizational features to realign their fit to environmental demands (e.g. Lawrence and Lorsch 1967; Thompson 1967; Child 1972; Chandler 1977; Pfeffer and Salancik 1978; Porter 1980; Rumelt 1986). Since then, an approach to studying organizational change that places more emphasis on environmental selection processes, introduced at about that time (Aldrich and Pfeffer 1976; Hannan and Freeman 1977; Aldrich 1979; McKelvey 1982), has become increasingly influential. The stream of research on ecological perspectives of organizational change has generated tremendous excitement, controversy and debate in the community of organization and management theory scholars. Inspired by the question, Why are there so many kinds of organizations?"

"Historically, most societies have been heavily skewed in favor of the power pole, and most of history— especially modern history— can be seen as a struggle toward the authority pole, that is, toward the institutionalization of a process of informed, consensual self-determination of the whole, which we call "democracy"."

"Research indicates that employees have three prime needs: Interesting work, recognition for doing a good job, and being let in on things that are going on in the company."

"Recent research on organizational ecology is reviewed. Three levels of analysis and approaches to evolution are distinguished: (a) the organizational level, which uses a developmental approach; (b) the population level. which uses a selection approach; and (c) the community level, which uses a macroevolutionary approach. Theoretical and empirical research is critiqued within this framework. Proposals to develop organizational taxonomies are considered."

"We situate the Special Research Forum on Organizational Ecology in the program of ecological research on organizations. We begin with a broad description of organizational ecology's theoretical and empirical development based on the contents of prior collections of work in the field. We then highlight key issues facing ecological research, outline how the articles in this special research forum are linked by common threads, and discuss their contributions. We close with suggested directions for future research."

"Because of the institutionalization of socially dominant interests, major innovations in the city’s role, meaning and structure tend to be the outcome of grassroots (people’s) mobilization and demands. When these mobilizations result in the transformation of the urban structure, we call them social movements"

"The ultimate measurement is effectiveness, not efficiency."

"Culture is the collective programming of the mind distinguishing the members of one group or category of people from others."

"Simon (1950, 1952-3, 1952) was a leading proponent for the creation of “organization theory”, which he imagined as including scientific management, industrial engineering, industrial psychology, the psychology of small groups, human-resources management, and strategy."

"Hackett and Guion (1985) offer a number of explanations for the weak relation between job satisfaction and absenteeism. One reason is the measurement of absenteeism itself. Although at first glance absenteeism would appear to be a rather simple variable, it is actually quite complex. For example, when measuring absences, one can distinguish between excused and unexcused absences. Excused absences would be allowed for events such as illnesses and funerals. In unexcused absences, the employee simply does not show up at work. One could argue that job satisfaction would be more likely to play a role in unexcused than in excused absences."

"Job satisfaction is typically defined as an employee’s level of positive affect toward his or her job or job situation... Along with positive affect, we can add both a cognitive and a behavioral component to this definition... The cognitive aspect of job satisfaction represents an employee’s beliefs about his or her job or job situation; that is, an employee may believe that his or her job is interesting, stimulating, dull, or demanding—to name a few options... The behavioral component represents an employee’s behaviors or, more often, behavioral tendencies toward his or her job. An employee’s level of job satisfaction may be revealed by the fact that he or she tries to attend work regularly, works hard, and intends to remain a member of the organization for a long period of time."

"The subject of human resource management (HRM) and its development has been much contested in the literature. Most of the relevant theories originated in the United States of America. There is in the literature no distinctly “European” approach to HRM and, indeed, our knowledge of comparative HRM practices in different European states is limited."

"The idea of human resource management has become topical and controversial. The term suggests that people in any organization are an asset to be upgraded and full utilized rather than merely a variable cost to be minimized. This in turn implies that the way in which people are managed is a matter of crucial strategic concern."

"Human resource management (HRM) developed initially from work in the United States of America in the 1960s and 1970s and since the mid 1980s has been an ever more visible feature of the academic literature, of consultancy services and of organisational terminology; particularly in the USA and Great Britain."

"Hannan and Freeman examine the ecology of organizations by exploring the competition for resources and by trying to account for rates of entry and exit and for the diversity of organizational forms. They show that the destinies of organizations are determined more by impersonal forces than by the intervention of individuals by the intervention of individuals."

"The stress on 'human resources' as an organizational asset goes back at least to Drucker (1954). This was elaborated in the theory of 'human capital' by Schultz (1963) who was concerned to describe the benefits of education as a 'production good' enhancing the economic resources of society, and by others like Becker (1964) who argued for the benefits to economic growth of a well-trained workforce. While labour market segmentation theory developed in reaction (stressing institutional processes in labour market formation), human asset accounting in the 1970s applied the capital theory to quantifying investments in people by the organization (Flamholtz, 1974). This was embraced by some (for example, Likert, 1967) as a way of encouraging humane employment policies, less geared to the short-term (although others saw in it the rule of accountants)."

"Theory and research on institutionalization have generated valuable insights into the processes that define and explain institutionalization in organizational environments and their influence on organizational conformity to the environment. Early versions of institutional theory placed particular emphasis on the taken-for-granted character of institutional rules, myths, and beliefs as shared social reality and on the processes by which organizations tend to become instilled with value and social meaning (Berger & Luckmann, 1967; Selznick, 1949, 1957). More recent treatments of institutionalization have elaborated the nature and variety of these institutional processes (DiMaggio & Powell, 1983; Meyer & Rowan, 1977; Zucker, 1977, 1988) and the range of influences that these processes exert on structural characteristics of organizations (Meyer, Scott, & Deal, 1983; Meyer, Scott, & Strung, 1987; Scott, 1987a; Scott & Meyer, 1987; Singh, Tucker, & House, 1986) and organizational change (Hinings & Greenwood, 1988; Tolbert & Zucker, 1983). Notably lacking from this literature, however, is explicit attention to the strategic behaviors that organizations employ in direct response to the institutional processes that affect them."

"[The Integrated Model of Work Stress (ISR) model] is straightforward, easy to understand, and has guided much of the work stress research and theorizing in the past 25 years."

"The higher we go, the ups and downs at the lower level would gradually fade. If what we do is to be worth while and if we are to get job satisfaction, we have to study more and work hard. The more we work, the stronger the profession would become and grow."

"There is a great variety of measures of job attitudes. Basically, however, the identification of job attitudes has been done in three ways. In the first of these the worker is asked to express his "job satisfaction" directly by answering questions that investigate his over-all attitude toward his job, whether he likes or dislikes it."

"Two of the most widely adopted models of human resource management are the hard and soft versions. These are based on opposing views of human nature and managerial control strategies. The hard model is based on notions of tight strategic control, and an economic model of man according to Theory X, while the soft model is based on control through commitment and Theory Y. We argue that because these assumptions are so divergent, they cannot both properly be incorporated within a single model of human resource management."

"This study examines two alternative views—universal and contingency—of the human resources (HR)-performance relationship in manufacturing settings. Results from a survey of 97 plants primarily support a contingency approach to human resource management (HRM). An HR system focused on human capital enhancement was directly related to multiple dimensions of operational performance (i.e., employee productivity, machine efficiency, and customer alignment), but subsequent analysis revealed that this main effect was predominately the result of linking human-capital-enhancing HR systems with a quality manufacturing strategy. Other manufacturing strategies also moderated the HR-performance relationship."

"As tasks become more varied and require greater training and skill, the relationship (between job attitudes and performance) appears to change progressively from the negative to positive."

"This paper investigates organizational mortality in the early American telephone industry, in which thousands of companies proliferated and failed under conditions of technological change. Drawing on the theory of community ecology, it is predicted that when technologies are systemic, technological change does not necessarily favor advanced organizations. Instead, mutualism is predicted among both advanced and primitive firms, as long as they are technologically standardized and differentiated. Competition is expected when organizations are technologically incompatible or non-complementary. The hypotheses are supported by dynamic models of organizational mortality, estimated using archival data describing the life histories of all telephone companies that operated in Pennsylvania up to 1934 and in southeast Iowa from 1900 to 1930."

"[Each person] is a member of one or more functioning workgroups that have a high degree of group loyalty, effective skills of interaction and high performance goals."

"I defined personal engagement as the harnessing of organisation members' selves to their work roles; in engagement, people employ and express themselves physically, cognitively, and emotionally during role performances."

"Job satisfaction and job dissatisfaction are not the obverse of each other... The opposite of job satisfaction would not be job dissatisfaction, but rather would be no job satisfaction. Similarly, the opposite of job dissatisfaction is no job dissatisfaction, not satisfaction with one's job."

"By definition, job performance is behavior, so job performance is rarely measured directly. More typically, what is measured is some external assessment of job performance."

"Job performance is a deceptively simple term. At the most general level, it can be defined simply as “all of the behaviors employees engage in while at work.” Unfortunately, this is a rather imprecise definition because employees often engage in behaviors at work that have little or nothing to do with job-specific tasks."

"Each sent pressure can be regarded as arousing in the focal person a psychological force of some magnitude and direction. Such forces will be called role forces. This is not to say that these motivational role forces are identical in magnitude and direction with the role pressures which evoked them. Especially when role pressures are seen as illegitimate or coercive, they may arouse strong resistance forces which lead to outcomes different from or even opposite to the expected behavior. Pressures to increase production rates sometimes result in slowdowns. Moreover, every person is subject to a variety of psychological forces in addition to those stimulated by pressures from his role set in the work situation. Role pressures are thus only a partial determinant of behavior on the job. In addition, to the motivational forces aroused by role pressures, there are important internal sources of motivation for role performance. One of these stems from the intrinsic satisfaction derived from the content of the role."

"Research reveal that managers achieving better performance (i.e., greater productivity, higher earnings, lower costs, etc. ) differ in leadership principles and practices from those achieving poorer performance."

"The power to distinguish between person and performance and to communicate intrinsic worth flows naturally out of our own sense of intrinsic worth."

"In recent years economists and historians have increasingly turned their attention to modern economic institutions. Economists such as Edward S. Mason, A. D. H. Kaplan, John Kenneth Galbraith, Oliver E. Williamson, William J. Baumol, Robin L. Marris, Edith T. Penrose, Robert T. Averitt, and R. Joseph Monsen, following the pioneering work of Adolph A. Berle, Jr., and Gardiner C. Means, have studied the operations and actions of modern business enterprise. They have not attempted, however, to examine its historical development, nor has their work yet had a major impact on economic theory. The firm remains essentially a unit of production, and the theory of the firm a theory of production."

"A firm is defined in economic theory as a market imperfection introduced to deal with transaction costs. And the sort of theory is that the imperfections, the firms, are kinda like little islands in a free market sea. But the problem with that is that the sea doesn't remotely resemble a free market, and the islands are bigger than the sea."

"I can charge a man's battery, and then recharge it, and recharge it again. But it is only when he has his own generator that we can talk about motivation. He then needs no outside stimulation. He wants to do it."

"In this line of thought Campbell (1993) developed an influential model containing eight dimensions to measure job performance (Jex 2002 pp. 90-92):"