ch02 - organisation theory design and change gareth jones

2-Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 11

Organizational Theory, Design, and Change

Sixth EditionGareth R. Jones

Chapter 2

Stakeholders, Managers, and

Ethics


Organizational Stakeholders Stakeholders: people who have

an interest, claim, or stake in an organization

Inducements: rewards such as money, power, and organizational status

Contributions: the skills, knowledge, and expertise that organizations require of their members during task performance


Inside StakeholdersPeople who are closest to an

organization and have the strongest and most direct claim on organizational resources Shareholders: the owners of the

organization Managers: the employees who are

responsible for coordinating organizational resources and ensuring that an organization’s goals are successfully met

The workforce: all non-managerial employees


Outside StakeholdersPeople who do not own the

organization, are not employed by it, but do have some interest in it Customers: an organization’s largest

outside stakeholder group Suppliers: provide reliable raw

materials and component parts to organizations

The government Wants companies to obey the rules of fair

competition Wants companies to obey rules and laws

concerning the treatment of employees and other social and economic issues


Outside Stakeholders (cont.)

Trade unions: relationships with companies can be one of conflict or cooperation

Local communities: their general economic well-being is strongly affected by the success or failure of local businesses

The general public Wants local businesses to do well against

overseas competition Wants corporations to act in socially

responsible way


Table 2.1: Inducements and Contributions of Stakeholders


Organizational Effectiveness: Satisfying Stakeholders’ Goals and InterestsAn organization is used simultaneously

by various stakeholders to achieve their goals

Each stakeholder group is motivated to contribute to the organization

Each group evaluates the effectiveness of the organization by judging how well it meets the group’s goals

For an organization to be viable, the dominant coalition of stakeholders has to control sufficient inducements to obtain the contributions required of other stakeholder groups


Stakeholder Goals Shareholders: return on their investment

Customers: product reliability and product value

Employees: compensation, working conditions, career prospects

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Competing Goals Organizations exist to satisfy

stakeholders’ goals But which stakeholder group’s goal is

most important? In the U.S., the shareholders have first

claim in the value created by the organization

However, managers control organizations and may further their own interests instead of those of shareholders

Goals of managers and shareholders may be incompatible


Allocating Rewards Managers must decide how to allocate

inducements to provide at least minimal satisfaction of the various stakeholder groups

Managers must also determine how to distribute “extra” rewards

Inducements offered to shareholders affect their motivation to contribute to the organization

The allocation of reward is an important component of organizational effectiveness


Top Managers and Organizational Authority Authority: the power to hold people

accountable for their actions and to make decisions concerning the use of organizational resources

Shareholders: the ultimate authority over the use of a corporation’s resources They own the company They exercise control over it through their

representatives


Top Managers and Organizational Authority (cont.)

The board of directors: monitors corporate managers’ activities and rewards corporate managers who pursue activities that satisfy stakeholder goals Inside directors: hold offices in a

company’s formal hierarchy Outside directors: not full-time

employees

Corporate-level management: the inside stakeholder group that has ultimate responsibility for setting company goals and allocating organizational resources


The Chief Executive Officer’s (CEO) Role in Influencing Effectiveness

Responsible for setting organizational goals and designing its structure

Selects key executives to occupy the topmost levels of the managerial hierarchy

Determines top management’s rewards and incentives


The CEO’s Role in Influencing Organizational Effectiveness (cont.)

Controls the allocation of scarce resources such as money and decision-making power among the organization’s functional areas or business divisions

The CEO’s actions and reputation have a major impact on inside and outside stakeholders’ views of the organization and affect the organization’s ability to attract resources from its environment


Top Management Roles

CEO—Often has primary responsibility for managing the organization’s relationship with external stakeholders

COO—Responsible for managing the organization’s internal operations

Exec. Vice Presidents—Oversees and manages the company’s most significant line and staff roles

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To be included, a CEO had to have assumed the job no earlier than January 1995 and no later than December 2007

On average, the top 50 CEOs increased the wealth of their shareholders by $48 million.


The Top-Management Team

Line-role: managers who have direct responsibility for the production of goods and services

Staff-role: managers who are in charge of a specific organizational function such as sales or research and development (R&D) Are advisory only


The Top-Management Team (cont.)

Top-management team: a group of managers who report to the CEO and COO and help the CEO set the company’s strategy and its long-term goals and objectives

Corporate managers: the members of top-management team whose responsibility is to set strategy for the corporation as a whole


Other ManagersDivisional managers: managers

who set policy only for the division they head

Functional managers: managers who are responsible for developing the functional skills and capabilities that collectively provide the core competences that give the organization its competitive advantage


Figure 2.1: The Top-Management Hierarchy


An Agency Theory Perspective Agency theory suggests a way

to understand the conflict that often arises between shareholder goals and top managers’ goals

Agency relation occurs when one person (the principle, i.e. shareholders) delegates decision-making authority to another (the agent, i.e. managers)


Agency Problem

There is a problem in determining managerial accountability that arises when delegating authority to managers

Shareholders are at information disadvantage compared to top managers

It takes considerable time to see the effectiveness of decisions managers may make

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The Moral Hazard Problem A moral hazard problem exists when

agents have the opportunity and incentive to pursue their own interests

Very difficult to evaluate how well the agent has performed because the agent possesses an information advantage over the principal

Self-dealing describes the conduct of corporate managers who take advantage of their position in an organization to act in their own interests

ch02 - organisation theory design and change gareth jones

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