Posted: June 15th, 2023

Organisational Theory: What is Organisation Theory?

Organisational Theory

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Content

• Overview

While most managers in health services use an eclectic approach to management, it is helpful to examine different theoretical positions to establish which frameworks underpin your decisions. We will examine some popular organisational theories however it is impossible to present an exhaustive or fully representative explanation of the plethora of theories regarding the structure and function of organisations. This information is intended as a tantalizing taste for you to undertake further research in order to understand the many facets of organisations and how theories assist in understanding of organisational behaviour. It is intended that you will selectively and critically explore the theories according to your quest for competency in leadership and decision-making.

Topics in this lecture

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• What is organisational theory?
• Systems thinking
• Main organisational theories

Learning Objectives

• Define organisational theory
• identify some of the main organisational theories
• Investigate and evaluate strategic decision making process on an organisational level

 

Organisational Theory

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  What is Organisation Theory?

Organisational theory is the study of the design and structure of organisations. It incorporates the way that organisations can be structured to maximise its effectiveness. We need to understand key theories and practice in organisations to enhance strategic decision making.

We will look at in detail some of the main organisation theories a bit later in this module

 

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Organisational Structures

The following are the basic organisational configurations:

 

• Simple structure
• Bureaucracy
  • Machine bureaucracy
  • Professional bureaucracy
  • Divisional Structure
  • Adhocracy

 

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Mintzberg's 5 elements of an organisation.
The Simple Structure

The simple structure has the following characteristics:

• Low in complexity
• Low in formalisation
• High in centralisation
• A flat organisation with strong centralised control

Strengths	Weaknesses
simplicity	Onlyworkable in small organisations
Clear accountability	Concentrates power in one person who could be authoritarian or lack management skills
Minimum goal ambiguity
Easy to see how one's work contributes

• Bureaucracy

Machine Bureaucacy	Professional Bureaucracy
High in complexity	Combines stadardisation with decentralisation
High in formalisation	same efficiency as machine bureaucracy
High in centralisation	operating core dominates- because of skills
Strengths	Weaknesses
Efficiency	Inflexibility
Rules instead of management discretion	Inability to adapt to change quickly
Efficient production means low costs to consumer	Specialisation can cause subunit conflict
	Does not encourage innovation or creativity

• The Divisional Structure
• the divisional structure is a set of autonomous self-contained units, each typically configured as a machine bureaucracy’ (Robbins & Barnwell 2002: 116)
• The dominant part of this structure is the middle line because it is the middle managers  (that is the head of each division) who play the vital role.  They are like mini CEO who have great control over their divisions

  Strengths and weaknesses

Strengths	Weaknesses
Provides clear accountability and responsibility for the performance of each division	Duplication of activities and resources
Frees headquarters from day-to-day concerns	Competition between divisions for resources

• Adhocracy

• Decentralised
• High horizontal differentiation
• Low vertical differentiation
• Low formalisation
• Intensive co-ordination Great flexibility

Strengths	Weaknesses
Flexible	Ambiguities over authority and responsibility
Respond rapidly to change	Can create conflict: no clear cut boss subordinate relationships
Facilitates the co-ordination of diverse professionals
Encourages innovation and creativity

  Systems Thinking

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Systems thinking:

Is the process of understanding how things influence one another within a whole
Nature ecosystems consists of various elements

• Air
• Water
• Plants
• Animals

All work together to survive or perish.
In organizations, systems consist of people, structures, and processes that work together to make an organisation healthy or unhealthy.

 

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Organisational Theories

Some of the theories we will be looking at in our lecture and in your readings are:

 

• Impression Management Theory- Also known as Self-Presentation Theory emerging in the early 1970's

 

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• Aspiration Level Theory-This theory seeks to explain the relationship between objectives and the effort expended to achieve them.
• Small Group Leadership Theory-Small groups or teams within an organisation bring leadership activities to focus because of the need to lead several people simultaneously as a single ent

 

• Transformational Leadership Theory- best described as process in which leaders and followers raise one another to high levels of morality and motivation
• Charismatic Leadership Theory (Max Weber 1947)-Charisma can occur when there is a social crisis
  A leader with exceptional personal qualities emerges with a radical vision that provides a solution to the crisis
• Reasoned Action Theory (Fishbein)
• Porter-Lawler Theory of Motivation- Porter and Lawler suggest that employee effort is jointly determined by two key factors:

  -The value placed on certain outcomes by the individual;
  -The degree to which the person believes that there effort will lead to the attainment of these rewards.

• Social Learning Theory (Albert Bandura)-  Behaviour is viewed as a function of both personal and environmental factors
• Job Design Theory (Hackman)-The theory suggests that there are three core job requirements that cause critical psychological states which produce personal and work outcomes

 

 

Module 4: Organisational Design and Structure

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Overview

Classic and contemporary theoretical perspectives in organisational theory have been adapted in health services management culminating in some unique concepts peculiar to the healthcare industry. For example in health services management, issues relating to organizational design are concerned with the type or model of service delivery. A model is based on decisions about the overall strategic direction, organisational structure and organisational design features that the service adopts to provide healthcare to the community. Therefore, a model constitutes a macro view of health service delivery. This module will discuss concepts in organisational design as they relate to decision making in health services management.

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At the completion of this module, you should be able to:

• Define organisational design and structure
• Identify the components of organisational structure
• Integrate theory with practice in the area of strategic decision making
• Investigate and evaluate strategic decision making process at an organisational level.

4.1 Organisational Design and Structure
·The word organisation has two different meanings in this area of study including:

1. An institution or functional group such as a business or a society
2. The process of organising is the way in which work is arranged and allocated among members of an organisation so that the goals of the "organisation" can be most efficiently achieved.

The process of organising is about dividing up the work that is done among areas and employees, and linking together these areas and jobs in order to form a unified whole.
The strategic model of organisational design is shown below.

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The organisational structure affects the characteristics of the strategic decision making processes.  Core dimensions of the organisational structure are:

1. Centralisation: Delegation of decision making and evaluations
2. Formalisation: Extent rules and procedures
3. Complexity: Parts and levels of the organisation.

Details of the core dimensions are shown in the table below.

 

Centralisation	Formalisation	Complexity
Propositions 1 A-D. As the level of centralisation increases, so does the probability that:	Propositions 2 A-D. As the level of formalisation increases, so does the probability that:	Propositions 3 A-D. As the level of complexity increases, so does the probability that:
1-A The strategic decision process will be initiated only by the dominant few, and that it will be the result of proactive opportunity seeking behaviour.	2-A The strategic decision process will be initiated only in response to problems or crisis that arrear in variables that are monitored by the formal system.	3-A Members initially exposed to decision stimulus will not recognise it as being strategic or will ignore it because of parochial preferences.
1-B The decision process will be oriented toward achieving “positive” goals (i.e. intended future domains) that will persist in spite of significant changes in means.	2-B Decisions will be made to achieve precise, yet remedial goals, and that means will displace ends (goals).	3-B A decision must satisfy a large constraint set, which decreases the likelihood that decision will be made to achieve organisational level goals.
1-C Strategic action will be the result on intendedly rational “strategic choice”, and that moves will be major departures from the existing strategy	2-C Strategic action will be the result of standardised organisational processes and that moves will be incremental.	3-C Strategic action will be the result of an internal process of political bargaining, and that moves will be incremental.

Complexity

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Complexity in healthcare organisations is evident in intricate divisions or departments.  Department titles are aimed at clearly delineating the nature of the work and providing differentiation from other departments.  The department title attempts to reflect the core function but often results in a "fuzzy" or bureaucratic term.

There are two types of complexity, horizontal and vertical.  Horizontal and vertical differentiation of departments can create overlap, duplication or, alternatively, gaps.  This can be multiplied when an organisation is geographically dispersed.

Horizontal differentiation:  refers to the nature of the work and degree of specialisation, skills and knowledge.  Departments in health are based on clinical or medical specialties, for example, Medicine, Surgery, Obstetrics, Pediatrics and to some extent functional specialisation, Admissions, Medical Imaging, Radiology, Pathology

Vertical differentiation:  in health care services can be extremely hierarchical, that is, vertically differentiated by districts, areas, regions and zones.  Commonwealth or private sector organisations may be a state-wide distribution with highly complex organisations requiring well developed communication and coordination.

Standardisation, Professionalism and Individuals

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Quality management has adopted an evidence based practice approach to the delivery of clinical services to support standardisation.  Benchmarking of outcomes is emerging as a means to increase formalisation in clinical and non-clinical services.

Individual work performance is not standardised in clinical and management roles with professional autonomy seen as an essential feature of job satisfaction amongst health professionals.  Training is one of the key mechanisms to maximise formalisation within a health care organisation.

Health service organisations have a myriad of policies and procedures, job descriptions and records.  Fundamental tension exists between standardisation and professionalism, with the clinician seeing it as their right to decide on how the clinical treatment is provided.

Whether decision making in health services are centralised or not, is fundamental in determining the organisational structure.  Historically, the authority to make decisions about financial and human resources have been highly centralised, but this has changed significantly since the late 1980’s.

The emergence of clinical governance has further reinforced the decentralisation of decision making and managers, who are clinicians, have the power to shape the future of the health services.  The degree to which clinicians have control over their decisions is dependent on both their seniority as a clinician and as a manager.

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Essential features to the effective control over the decisions are:

• information management,
• access to information,
• interpretation, and
• the ability to make decisions or choices based on that information.

Highly centralised organisations have control over the way decisions are converted into actions and how they are accomplished.  The major consequences of centralisation are:

• the abilities to respond rapidly to needs, and
• to change in order to deal with competition.

 

4.2 Components of Organisational Structure

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The significant influences in organisational structure include: Strategy; Size and Complexity; Technology; and Environment.

Strategy

Strategy is about making decisions in relation to what are the goals and objectives of the organisation.  It is about making decisions to allocate or redirect resources to adopt a particular course of action. It is also about responding to changing demands and economic conditions, new technologies and activities of competitors.

Whether strategy is planned or it is allowed to evolve, is an important decision to be made about the organisation.  It can be argued that a strategy should evolve and, therefore, organisations can be open to opportunities as they arise.  This approach can be confusing at different levels in an organisation as they are reliant on aligning their decisions to the overarching corporate direction.
Ultimately, strategy and structure are integrally linked and these are underpinned by the concepts of:

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• Centralisation
• Formalisation
• Complexity

 

Size and Complexity

Australian health services are dominated by the size and location of acute public hospitals.  Health services are designed around acute public hospital organisations despite the rhetoric that population demographics drive decisions to expand or reduce the size and location of services.

The size of health services in relation to population is one of the most unclear and hotly debated of issues.  Some Australian States have adopted a per capita formula, while others with vast rural and remote communities argue that this significantly disadvantages these groups preventing access to essential services.

Issues are further complicated by the often sensational and negative media attention to reallocation of health services. In addition, the influence of politics, the location and health services must not be overlooked.

 

Technology

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Technology not only refers to equipment but also the techniques, information and processes that impact on clinical practice.  Health services could be viewed completely as technological entities and the more routine the technology, the more highly structured the organisation.  Conversely, non-routine technologies require more flexibility.

Increasingly, quality and risk management are impacting on technology.  Rather than standardisation of clinical practice, most technology development in health services relates to systems and process that are designed to support clinicians, and thereby, improve the episode of care for clients/patients.

 

Environment

Environmental uncertainty is very high in health care and includes:

• Technology changes
• Shifting consumer demands
• Lobby groups
• Political issues
• Negative media attention.

These are only some of the environmental factors that impact on health service managers with considerable evidence that current environments are more turbulent than ever. Health policy makers exist in organisations that need to differentiate and integrate while continuously improving quality and minimising risk.

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Summery

Structure, design and functioning of some health organisations are very rigid and lack flexibility.  They do not align with the ultimate purpose of providing quality health services to the population. For any health organisation, the health service delivery model should be the determinant of the organisational design and structure.

The organisational structure influences the context within which strategic decisions are made. The core dimensions of organisational structure are complexity, centralisation and formalisation. Complexity of the organisation is reflected in the number of divisions and departments; and the level of differentiation (horizontal or vertical). The level of formalisation is indicated by the degree of standardisation of processes and procedures.  Established clinical pathways and, particularly, evidence-based practice is adding standardisation to the clinical practice. Centralisation reflects the level at which strategic decisions are made - centralised or localised. With the emergence of clinical governance, the decentralisation of decision making in health care has been reinforced.

In the healthcare sector, public, private and non-for-profit organisations increasingly function in a network within the health system. The recent Health Reform in Australia, with the inclusion of the Hospital and Health Services (HHS), has reshaped the public health scenario. The establishment of the HHS - independent statutory entities - has changed the structure and decision making, decentralising power and providing more responsiveness at a local level.

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