Module 9

ORGANIZATION
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THEORIES AND
THEIR BUSINESS
APPLICATIONS
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CONCEPTS
 It is building blocks of thinking. It might take
multiple possibilities. For instance, concepts of
attitude toward work has various meanings and
interpretations for people. These are hypothetical
ideas.
 It enables you to identify, differentiate, and classify
experiences through conceptual systems.
 z ORGANIZATION THEORIES
 Theory – defined as a statement of proposition that explains
the relationships between two or more concepts (Jaccard &
Jacoby, 2010). It is used to explain the relationships of things
and phenomena around your environment.
 Theories in social sciences, such as management, make
fundamental assumptions about human behavior. It is to gain a
better understanding of people, situations, and events, as well
as reasons why certain things occur in the workplace.
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THREE MANAGEMENT THEORIES

-that guide managers in understanding
phenomena in the workplace and in predicting
behavior that is more likely to occur.
1. Contingency Theory
2. Resource-based Theory
3. Stakeholder Theory
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1. CONTINGENCY THEORY
 Organization theorists’ main concern
was organizational effectiveness,
which they believed should be the
central theme of organizations.
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1. CONTINGENCY THEORY
 It is neither rational school nor the human
relations school could provide clear
solutions to making effective
organizations. This led the management
theorists to propose the contingency
approach to better guide managers
toward effectiveness.
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1. CONTINGENCY THEORY
 Contingency movement became popular in
1960s and 1970s. Its approach disapproves of
oversimplified principles to ensure effective
management.
 First theorists who called the over-simplistic
approach to organizational effectiveness was
Herbert Simon (1940s).
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1. CONTINGENCY THEORY
 Daniel Katz and Robert Kahn – promoted
the open-system perspective to organization
theory and accelerated the development of
contingency theory. According to Katz and
Kahn, organizations must adapt to a
changing environment for them to survive.
 CONTINGENCY
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FACTORS THAT AFFECTS
ORGANIZATIONAL EFFECTIVENESS

1. Environment – major contingency factor

influencing organizational structure, leading to
organizational effectiveness.
2. Technology – Research by Joan Woodward
and Charles Perrow emphasized the
importance of matching organizational
structure with technology.
3. Size
z of organization – Researchers in Aston
University in the United Kingdom showed
patterns as organizations expand in size. Later
on, those patterns were proven useful in
organizational design.
4. Strategy or strategic choice – Strategy
pertains to the identified way to best accomplish
the goal. It may refer to a host of strategies, such
as cost minimization, product innovation, or
market diversification.
 z CONTINGENCY THEORY

 Emphasizes flexibility in management given

the dynamic changes in the environment.
BIG IDEA:
Contingency theory makes it imperative for
companies to adopt strong competitive
strategies to manage their business.
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2. RESOURCE-BASED THEORY
 The birth of the resource-based theory was
first traced from the works of Penrose (1959)
and Wernerfelt (1984), it was Barney’s
extended works (1991) that popularized the
theory.
 Barney emphasized the internal resources of a
firm as sources of competitive advantage.
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2. RESOURCE-BASED THEORY
 It essentially tells that resources within a firm that
are considered rare and which cannot be easily
copied, duplicated, or substituted provide the
sustainable competitive advantage.
 With emphasizes on the value of resources of a
firm, it provided the rationale for focusing on
people as the most important resource in an
organization (Barney, 1991).
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2. RESOURCE-BASED THEORY
 Human resources – viewed as the most crucial
source of competitive advantage since they carry
out the strategies of the business organization.
This is based on the idea that an organization’s
objcetives, strategies, and activities require a
unique set of behavior and attitude from the
organization’s managers and workers.
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 Resource-based Theory, therefore,
underscores the important role of proper
management of people for organization
to succeed. It emphasizes the need for
business organizations to craft
appropriate training programs that will
develop the skills, talents, attitudes, and
competencies of their employees.
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Strategic Human Resource
Management (Strategic HRM or SHRM)
 Puts a premium on the human capital pool that
are highly skilled and highly motivated.
 Another important area – employee behavior.

Individuals in the workplace are cognitive and

emotional human beings who have free will and
capacity for decision-making. They must freely
choose to adopt a positive work behavior.
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 The Resource-based Theory’s emphasis is on

people.
 The implication is that sustained competitive
advantage is a combination of human capital
elements such as development skills, attitude,
and behavior, as well as a people
management system aligned with the
competitive strategies in organization.
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BIG IDEA
 The resource-based theory provides
the foundation for today’s strategic
human resource management of
strategic HRM practices that
emphasize the alignment of HRM with
the identified competitive strategies of a
firm.
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3. STAKEHOLDER THEORY
 Stakeholder – person or entity who interacts
with a business.
1. Internal Stakeholders - the Board of Directors,
the top management, and the employees.
2. External Stakeholders – the customers, the
suppliers, the regulators, the financial providers,
the competitors, the government and media.
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3. STAKEHOLDER THEORY

 Takes into account the needs of various

stakeholders of the organization. If an
organization wants to be effective, it will pay
attention to the relationships thay can affect
the achievement of organizational objectives.
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For instance,
The quality relationship between an internal
stakeholders (such as Marketing Department)
and an external stakeholders (such as
customers)
On the other hand, Marketing Department and
Finance Department
 SEVERAL
z WAYS BY WHICH AN ORGANIZATION
CAN ENHANCE INTEGRATION AMONG ITS
STAKEHOLDERS

1. To forge close links with representative

organizations to avoid having to deal with
many dispersed, network-wide
organizations.
2. Through collaboration
3. By joint problem and resource sharing.
CORPORATE
z SOCIAL RESPONSIBILITY
(CSR)
 Management concept in stakeholder
theory.
Stakeholder theory, in essence, is about
socially responsible to the needs of different
stakeholders, or about corporate social
responsibility developed by Archie Carroll.
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ARCHIE CARROLL
 Served for many years at Terry College
of Business, University of Georgia. In
2012, he was awarded the first
Lifetime Achievement Award in CSR by
the Institute Management, Humboldt
University in Berlin, Germany.
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