INTRODUCTION TO ORGANIZATIONAL DESIGN Defining organizations „A group of indivdiuals who are formally connected by a common goal" (North, 1990) What is an institution? „An institution is a common valid rule" Think of it in a game: The institutions are the rules of a game where the organizations are the collective actors in it. Why do Organizations exist? Building an organization is useful because of: higher level of specialization and divison of labor advantage by reaching Economies of Scale and Scope (by using technologies) capabiltiy to manage the external environment reduction of transaction costs exert power and control Transaction Costs — Make or Buy Decision (Part 1) What are transaction costs? Ronald Coase (1937) definded them as „Costs of using the market" If transaction costs are not regarded it means that markets operate costless and efficient. -> no reason for the existenceof firms (organizations) Assumption: bounded rationality, uncertainty and opportunism Transaction Costs — Make or Buy Decision (Part 2) Different kinds of transaction costs Ex ante: Search and information costs Bargaining costs Ex post: monitoring and enforcement cost Transaction Costs — Make or Buy Decision (Part 3) Transaction cost increase when. organizations begin to exchange more specific goods and services uncertainty increases the number of possible exchange partners falls
The amount of transaction costs depends on the frequency of transactions the level of uncertainty the level of specification Question: What kind of differences between larger companies and SMEs exist with regard to their organizations? Who is connected with organizations? Different groups have a claim on the organization or/and are related to it Let's think of groups who have a claim on the organization!!!
What kind of conflicts can occur? (Partl ) Every stakeholder has different kinds of interest and goals So conflicts can occur when the different goals are not compatible First let's think of different relationships that goals might have... What kind of conflicts can occur? (Part 2) goals an their relationship identical - exchangeable, equal indifferent — reaching goal x has no influence on goal complementary — actions reaching goal x automatically help reaching goal competing — reaching goal x hinders reaching goal antinomy — reaching goal x only by abandonment of goal Competing goals: setting priorities , bargaining, power, influence / networks Organizations should be effective !!! But how can effectiveness be measured? There are different approaches to measure effectiveness. 1) External ressource approach Evaluation how effectively an organization manages and controls its external Environment — ability to secure, manage, and control scarce and valued skills and resources Determinants of external control of environment: Influence on Stakeholders perception in favour of the organization Positive evaluation especially of external stakeholders Ability to utilizie the environment Securing scarce and vulnerable ressources Ability to perceive and respond to changes in the environment