Organization theory
• Organization theory has also spawned a host of assumptions regarding human motivation. Rational-economic man is a ‘maximizer’ of conditions around him; his motivation is to rationally examine all options and select the best one or the one with the optimal returns. In contrast to rational man is the bounded rationali man of Herbert Simon. This model of decision-making assumes that there is no perfect or optimal decision, but the most satisfizing one, given all conditions. Somewhere in between are other assumptions about man’s activities in organizational settings.
Complicating the discussion further is the very nature of public organizations. Private (for profit) organizations are driven by the profit factor. Their mission(s) are defined and determined by the shareholders of the organization. Private non-profits do not have shareholders’ wealth as their goal, but their founders and Board of Directors interpret what society needs. Because of the private nature of this interpretation, the result is not public policy. Remember, public policy requires a democratic governance. Public organizations are vessels that implement the public will – or public policy. Because public organizations are ‘implementors’ of policy, they tend to be under the umbrella of Article II in the Constitution, the Executive. Wallace Sayre emphasized that public and private management are fundamentally alike in all unimportant respects. The fundamental difference is that public organizations exist to fulfill the public will and private organizations to satisfy the private will. Complexity is added when we take into consideration the implementation of the public will through a private non-profit organization or even a private for-profit organization.
These issues continue to season our thinking regarding the nature and purpose of public organizations and their management. This course builds on what was learned about organizations earlier in your academic career; however, it raises the discussion to a different level. It assumes that we are living in a world where distinctions between public and private are fuzzy. The boundaries are not clear. Technology has created different organizational forms, such as networks and virtual organizations, where the critical features are coordination and collaboration. Reflect on Walden University as an organization. Although Walden is a private, for profit organization much of what will be said applies to public organizations operating in similar systems. It is a virtual organization with a mixed structure. In the academic arena it is hierarchical: there is a President, a Provost, Deans of different Colleges, etc. etc. However, it delivers its product in a networked, virtual environment. Faculty as well as students are spread across the world. That such an organization is able to achieve its goals is the result of coordination and collaboration among all stakeholders.

Review of Sectors
Many of you may have taken already the Managing on the Boundaries course. This course is designed to introduce you to the different sectoral components of the economy and how they work together (or not!) If you remember, sectors were introduced as government, economic, educational, philanthropic and kith and kin. The basis for this classification is the role these ‘sectors’ played in society.
Another way of looking at sectors is provided by the economic perspective where sectors are identified by their production status. If a sector produces goods and services for public consumption without regard to profit, it is called the ‘public sector’. For the most part, government organizations comprise the public sector. Goods and services are produced and provided with public dollars without a profit motive in response to a democratically identified need which becomes public policy when captured in law.
If a sector, however, produces goods and services in response to a specific (not public) demand for them AND they are produced with private dollars and a profit motive, then it is part of the private sector. Within the private sector is a component that produces goods and services without a profit motive but they are produced in response to the views or beliefs of a philanthropist or a religious group. This component is called the private non-profit sector, or the NPO.
Both the public sector and the NPOs have traditionally delivered public goods and services to society. The boundary between the two is becoming increasingly blurred since NPOs are receiving more and more government or public funds to implement public policy. For example, in Kansas, the child welfare system is operated by a private firm. In many states, the prison system is run by private firms rather than by the state. And who has not heard of the movement to put public education in the hands of private parties in order to achieve better results.
It is because both sectors are engaged so intricately in delivering public goods and services or implementing public policy that this course becomes important. By knowing differences between both sectors, one can plan and manage them more efficiently and effectively.

Week 2
• Market Failure vs Government Failure
For the most part, there is an embedded belief in economics that if the market mechanism is left alone, efficiency and effectiveness will result in the delivery of goods and services. A parallel belief is that given the alleged benefits of the free market system, public policy (which is a public good) can also be implemented through it. Efficiency and effectiveness will occur. However, there are moments when the government steps in because the market is inefficient or unable to implement the public good. What are those conditions and situations that lead to government as the producer and provider of public policy? Similarly, under what conditions can the market enter in a situation to deliver a public good? What issues must we take into consideration. Ultimately, how are organizations that deliver public goods and services affected by this?

I. Theoretical Background
Political economists have debated over the decades which is the best method of delivering public goods and services. The allocation and exchange among goods and services and consumers typically takes place in a market mechanism which is able to organize demand and meet it with efficient supply. For example, there are several types of cars in the market. For each type, there is a defined demand. The market is very rational. Rarely does it produce more than the existing demand. Every once in a while, through external forces, such as marketing, the demand begins to outstrip supply and, then, prices soar. Economists point to the price mechanism as a regulator.
In contrast to private markets, public markets, which is government, exist to support the exchanges between voters and policymakers. Think about this. Voters elect individuals who craft policy. One of the major differences between the market and the government is that in the market place there can be a curve representing all the possible combinations of demand and supply. In the public market, the only policies that are implemented are those that are passed by a majority. Policies supported by minority votes are not implemented. There is only one good, the policy that was passed.
When it comes to public goods and services, neither the private nor the public market is better (or worse) at producing or providing public goods and services. The private market place tends to emphasize efficiency and effectiveness. The public market place tends to emphasize equity. For example, education is delivered through both markets. In the private marketplace, education is mostly private. There is a spectrum of educational services for children. As long as the parent or caretaker is willing to pay a specific price, he or she will get the education that is available for that price. In the public market place, education is regulated. There is a public policy stating that all handicapped children will get education at public cost. The equity factor is here is that geven if there is only one handicapped child, public policy stipulates that that child will still be served regardless of cost. The issue of price mechanism is largely irrelevant in public policy implementation.
So, when can we know which public good and service (public policy) can be delivered by the private market place or when can it be delivered through government avenues? Let’s deal with the market place first. Markets ‘fail’ when they make one person better off without making another person worse off. Think about this. If I buy one steak when there are just a fixed number of steaks available, then I have my steak but you don’t have one. So I am better off, but you are worse off. This is called Pareto optimality. Under conditions of scarcity, my benefit must equal your disadvantage. If my getting the steak does NOT affect you at all and does not make you worse off, then it means that somewhere the price mechanism is failing to allocate the resources; hence we have ‘market failure’.
Government – or public markets- fail when government has created inefficiencies in the delivery of a public good. Let us examine an example: in some areas of the country public education is not performing well. Children are not learning. Systems are broken down. In many schools the problem of ineffective education is exacerbated by union contracts that perpetuate ineffective designs. The continued reliance on the government to provide that service can exacerbate the problem so that neither efficiency nor effectiveness are achieved. In many jurisdictions public education is now being delivered by private schools or through organizational designs modeled after private marketplace mechanisms. For example, charter schools, vouchers, magnet schools represent some organizational forms designed to capture the efficiency and effectiveness of the market place without forsaking equity. More examples include garbage collection. Private garbage collection has allowed competition to enter into the factor of providing the service. The success of this model has resulted in having public garbage collectors provide proposals to compete with private garbage collectors at a lower cost. The same for prisons, recreational services, and libraries.
Examine the following situations that illustrate market failure. For the most part, the mail is delivered very efficiently through FedEx and UPS. However, they might not deliver to a sole person living in the middle of the North Pole, whereas government has the obligation (though public policy) to deliver all the mail to all the people, regardless of actual cost. Again, take for example the space mission. The private marketplace could produce moon flights, etc. but the cost would be so astronomical that it would be impossible for the market to do it. Government has an endless source of funds through the taxing mechanism, hence, it is able to provide space flights better.

II. Implications for Organizations
There once was a time when it was very clear that public organizations delivered public goods and services and private markets provided private goods. That fine line of demarcation has become more and more blurred as we enter a world where networks, collaboration and coordination are valued. We are operating in a shared world. There is a school of thought in political economics known as public choice which supports the idea that public organizations can be designed with private marketplace characteristics. In other words, we can have public schools delivered in the public marketplace but where features of the private marketplace are in place. Features such as competitions, self regulation, etc.
As you learned in many of your courses on organizations, the form of the organization is frequently shaped by its mission and colored by the values of the leadership. In a classic age, private organizations existed to maximize shareholders’ value. Public organizations existed to implement public policy in an efficient, effective and equitable manner. We also have the private non-profit organization whose goal is to deliver a good or service as defined by its board of directors. And, more recently, we have the expansion of non-governmental organizations (NGO) whose purpose is to affect the public arena. Many organizational forms. Here is where the individual decisionmaking of the public administrator is very important. Where to assign the implementation of a specific public policy? Should social security, a very public policy, continue to be delivered by the public organization? Is the design the most effective, most efficient, or the most equitable? Or, should we have private accounts with private insurers where public dollars are invested for the purposes of meeting public ends as described in the Social Security Act of 1935 (as amended by subsequent public laws) And, does the American Red Cross (a private non-profit) perform a better job in disaster relief than FEMA?
There are many questions raised by the dynamic of market or government failure.

III. Examples of Government Successes
Before presenting the entire list, here are some truly dramatic government success stories that every American should know. Private enterprise could not have accomplished a single one of these feats.

Settling the West: The U.S. government played a vital role in settling the West, including massive land purchases and giveaways, the Homestead Act, the Pony Express, agricultural colleges, rural electrification, telephone wiring, road-building, irrigation, dam-building, farm subsidies, and farm foreclosure loans.

Funding Railroads: In the late 19th century, the government gave away 131 million acres in federal land grants, at enormous cost to itself, to railroad companies to build their railroads. Four of the five transcontinental railroads were built this way. To help them, Congress authorized loans of $16,000 to $48,000 per mile of railroad (depending on the terrain).

Telephone Infrastructure: The early telephone companies couldn’t afford to wire communities for telephone service themselves, so they turned to the government for help — and government funding wired nearly the entire nation.

Eisenhower’s Interstate Highway Program: This massive 1950s program paved an entire continent with highways, bringing undreamed of economic change, and allowing the middle class to resettle from the cities to the suburbs.

Rural Electrification: In 1935, only 13 percent of all farms had electricity, because utility companies found it unprofitable to wire the countryside for service. Roosevelt’s Rural Electrification Administration began correcting this market failure; by 1970, more than 95 percent of all farms would have electricity.

Federal Emergency Management Agency (New Version): Once a bureaucratic joke, today FEMA has won widespread praise for its response to natural disasters like earthquakes, hurricanes, floods and tornadoes. No private business could wait the long intervals between disasters like FEMA does, or bring relief to entire cities or states.

Human Genome Project: The government provides the money and the organization for this 20-year project, which will give medical science a road-map of the human genetic code. Researchers have already found genes that contribute to 50 diseases.

Centers for Disease Control and Prevention: This legendary American organization, popularized by the movie Outbreak, isolates and wipes out entire plagues and diseases that strike anywhere in the world. “The CDC,” says Dr. James Le Duc of the World Health Organization, “is the only ballgame in town.”

The Internet: In the 1960s, the government created ARPANET, which was used and developed by the Defense Department, public universities and other research organizations. In 1985, the National Science Foundation created various supercomputing centers around the country, linking the five largest together to start the modern Internet we know today.

The Federal Reserve System: Using Keynesian policies to expand or contract the money supply, the Fed has completely eliminated the depression from the American economic experience in the last six decades.

Employee Rights: Over strong opposition from business leaders and conservatives in Congress, liberals passed all the laws that workers take for granted today. These include the elimination of child labor, the creation of the 40-hour work week, overtime pay, paid vacations, the minimum wage, workers’ compensation, worker’s insurance programs, Social Security, organized labor rights and worker safety and health laws.

IV. Some Market Failures
Automobile Safety: The auto industry fought for decades to prevent mandatory seat-belts, air-bags and other critical safety features. Why? Because adding such life-saving devices cut into profits.

Auto Mechanics: It’s almost a certainty: the final bill will exceed the original estimate. Even worse: mechanics who make unnecessary repairs.

The Battle of the Taxi-Cabs: You want the lowest fare possible, but your cabbie wants the highest. As a result, the shortest distance between two points is often a crooked line.

The Cable Industry: After deregulation in 1984, cable prices soared, quality of programming plummeted, and service providers began selling their channels in indivisible blocs to prevent subscribers from voting with their dollars. From 1986 to 1990, the cost of basic service rose 56 percent — twice the rate of inflation.

The Corporate Special Interest System: So who’s bribing our Congress? In 1992, corporations formed 67 percent of all PACs, and they donated 79 percent of all contributions to political parties. This poses a dilemma to believers in the invisible hand: how do you condemn today’s government without condemning the free market that controls it? A better alternative: democracy.

Corporate Welfare: Private enterprise is quite adept at feeding at the public trough, despite its professed antagonism for government. One of the most famous examples is the Wool and Mohair Lobby, which receives $100 million a year for a product the Pentagon no longer needs. Estimates of corporate welfare run from $85 billion to $800 billion a year.

The Cuyahoga River: This Ohio river was so polluted by industrial waste that it caught fire three times. Government stepped in and ordered a $1.5 billion cleanup. Today, the river is clean.

The Drug Industry: According to Dr. George Silver, a professor at the Yale University School of Medicine, about 22 percent of the 6 billion doses of antibiotic medicine each year are overprescribed, resulting in 2,000 to 10,000 unnecessary deaths annually.

The Exploding Ford Pinto: Ford knew for years that it would cost only $11 per Pinto to correct defective gas tanks that exploded upon impact. The company decided it was cheaper to let its customers burn and pay out damages to victims or their families instead.

The Exxon-Valdez Oil Spill: The oil industry has long fought to defeat laws requiring double-hulled oil tankers. And what few oil-spill cleanup measures existed at Prince William Sound were ones that legislators had mandated. These measures failed miserably when the single-hulled Exxon Valdez ran aground and spilled 11 million gallons of oil into Alaska’s most scenic waters. Let us not forget the 2010 Gulf Oil Spill! or the 2008 Wall Street meltdown with the car industry near collapse.
Week 3
• Institutionalizing Organizational Features

This week touches on a topic that is both challenging and difficult to completely comprehend. As we go deeper into organizations, whether public or private, we encounter that ‘things’ are done in a specific way, regardless of the structure of the organization. To a certain extent, and to offer a circular argument, schools behave they way they do because they are…schools! Likewise, public libraries behave like public libraries because they are…(you guessed it) libraries! And so on, and so forth. I think that by now you get the point I am trying to make. If a hospital behaved like a recreation center, we would have difficulty trusting it as a place where serious health care is being delivered. The theory that explains this phenomenon is called ‘institutionalism’.

I. Definitions
From the start we need to be very clear what institutionalism is and what it is not. For this we need to make sure that we understand that when we are looking at organizations we are looking at sectors, industries, and institutions. Each defines an aspect of the organization.
Sectors: we have already worked with this concept. Baume and Tolbert (1985) define a sector as a broad segment of the economy. These segments are characterized by firms that produce, provide or arrange the provision of goods and services. If the firms produce, provide or arrange the provision of goods and services for profit, then the sector is the private, for profit sector. If the firms in the sector produce, provide or arrange the delivery goods and services as a result of the implementation of public policy, then the sector is public.

Industries: within each sector there are firms that produce the same type of goods and services. For example, the health care industry includes both the private and the public sectors. There are for-profit hospitals as well as non-profit ones.

Institutions: a social structure which bundles rules, traditions around a specific good or service, or a specific social entity. For example, we can speak about the institution of marriage or the family. In this sense, the institution does not have a physical organizational ‘container’. (Olson and Eoyong ) However, we can also speak about the institution of the Senate or Congress or the Presidency and the image is bounded.

II. Importance of Understanding Institutions in Organizational Theory and Behavior
The importance of understanding the impact of institutionalism on organizations is very subtle. The best way of clarifying this relationship is by posing a series of questions. As we stated in the introduction, we can ask why do all schools behave the same way? Institutional theory would argue that the process of delivering educational services raises certain ‘rules’ of behavior in the organization that shape the organization so that it is different from a …hospital. Think about it a bit more. In the example we have just used, there are ‘rules’ of behavior that are unique to schools (regardless of their sector). There are professionals who are recognized as educational professionals. They too shape the schools as organizations.
We can deduct from this argument that public organizations act as public organizations because there are specific rules of behavior unique to being public which are institutionalized. What could some of these rules be that make the organization uniquely public? Think of some!

III. Theoretical Background of Institutionalism
The history of institutionalism is characterized by the existence of two schools of thought. The first, the Old Institutionalism. covered the study of political institutions, such as the Congress, etc. The underlying belief in the Old Institutionalism was that the constitutional and legal frameworks shaped these organizations. Classic institutional analysis emphasized the legal framework of governance structures. In answer to the question why do certain political institutions behave the way they do, the answer would have been because the Constitution or the law defines their behavior!
Newer institutional analysis and thinking departed from the exclusive reliance on the legal framework for the definition of organizations. Philip Selznick (1949 ) proposed that organizations are basically containers for institutions. If organizations have structure, function and hierarchy – then institutionalism was basically the process by which the organization became defined as a specific type. Herbert Simon, (1956) whom we have read in other settings, advanced the notion that the process of institutionalism simplified and supported decision-making within a specific environment. Again, using the example of the schools: when a school related decision has to be made those who make the decision use school related processes and procedures, not health care processes! Efficiency results from the use of those specific rules of decisionmaking.
Many other scholars have enriched the new institutionalism theoretical concept. Most agree that the new institutionalism is based on three pillars: norms of behavior, regularization of the behavior, and the culture of the institution. (Powell and DiMaggio, 2005) Again, to return to our school example… The norms of behavior have been shaped from years of schools working as schools, the behavior of schools is regularized by professional and other sanctions, and there is a school culture in which schools share. Elinor Ostrom (2001) one of the most prolific public policy writer of this age, adds that the following ‘rules’ comprise the process of institutionalization: boundary rules (how far does the essence of this organization go? when do we know that we have left this field and have entered into another?), position rules: in what sector does this organization belong?; scope rules: which outcomes or results are allowed and which are not?; authority rules: how are sanctions distributed?; aggregation rules: what are the steps toward a final outcome or result; information rules: how is communication handled?; payoff rule: what is the reward? For the sports minded this might become easier to conceptualize if you apply this analysis to two different sports, let’s say, football and..basketball. Both use a ball but both are very different types of sports. Think of the rules that apply to each.
Further, the new institutionalism believes that organizations are not only dependent on the environment but also on its sector. What becomes institutionalized is not the organizations, per se, but the forms, the structural composition, and the rules of interaction or engaging.

Week 4
• Organizational Design

Let’s take a few minutes to review where we have been so far. In the first week of the course we conducted an inventory of everything you know (or remember!) about organizations. This inventory was drawn from all the courses you have taken so far in this program. I am sure that the majority of you used the classical definition of organizations which was highly mechanistic. Weber’s classical view of the organization is one which is highly hierarchical, centralized with roles and responsibilities clearly defined and authorized by a charter or some such legal document. The scientific revolution, of which Frederick Taylor was a major proponent, tended to rationalize production. So that we ended with an organization that was quite rigid and able to produce goods and services for which there was a planning process in place.
With week one’s work as our foundation we moved to a discussion of the essential difference between public organizations and organizations in the free market place. The critical question we asked is whether the free market was capable of delivering public goods and services. We found out that there are circumstances when the market cannot deliver public goods and services. Those circumstances included situations when the costs of delivering the service exceeded the revenues, or when competition was absent, or when equity was ta critical factor that the market place is not designed to meet. Public goods and services must be available to all (whether they paid into it through the taxing system or not). When the market place is unable to deliver goods and services under the conditins required by public policy the resulting situation is called market failure. We also discussed situations when the government fails to deliver a service or good, or deliver it well, such as in the case of public education in many jurisdictions. In cases like these, frequently private providers have been contracted to deliver the service itself hoping that the results are better than when the public organization delivered the service. This is not always true. A variation of this theme included the concept of public choice, a political economy concept, which denotes the situation when public organizations adopt the good characteristics of the free market system in order to deliver the service. For example, having competition among several public entities to pick up the trash.
Last week we began a discussion of institutionalism or the process by which an organization becomes and adopts its essential characteristics. We discussed the fact that institutionalism accords the rules and legitimacy for organizations to be what they are. Hence, we can say that there are differences between private and public hospitals, or between private and public education. The rules define those differences even when the good or service is the same. The bottom line is that public organizations are governed by the democratic process whereas non-profits are characterized by the values of the founder or the Board of Directors . Private for profit organizations are driven by the profit motive and maximizing shareholders’ wealth.
This week we look at organizational design or how organizations arrange themselves to deliver the good ror service. Call this the architecture of organizations. All organizations have structure, processes, functions and roles that are arranged in specific configurations in order to deliver the good or service in the most efficient manner (private organizations and non-profits) or in the most effective and equitable fashion (public organizations). This is what is called organizational design.

I. Definitions
The final paragraph above provided us with a good definition of organizational design. It is the configuration of the structure, processes, functions and roles in an organization. The design should be in place to support the most efficient method of producing the good and service. Even in the public sector, taxpayers are very wary of paying for a good or service from which they do not benefit (these are usually called redistributive good and services) or from which the benefit but where waste and inefficiency are rampant.
It used to be that in order to analyze an organizational design, two indicators were used: degree of formalization and the degree of centralization in the firm. The extent of formality inherent in the relationship of structure, processes, functions and roles to each other would inform us about the use of rules and policy to manage and define those relationships. Similarly, the extent of centralization in a firm would tell us how duplicative the organization needed to be. On the one hand, we have advocates of regional diversity, of making sure that the good and service reaches the a jurisdiction in a manner that is culturally and regionally appropriate. Decentralization would accomplish this but at a high price. The differential organization is equally decentralized but each component that is decentralized specializes on one aspect of the good and service that is delivered. Each of these formats require a different design configuration.

II. Types of Organizational Configurations
In addition to the ones we have mentioned already, three additional designs have prevailed in the last half century. The matrix organization mixes functions and processes. For example, in a matrix organization the training and development has its own divisional head but its work (function) reaches all the other divisions (processes). Frequently, a matrix organization is rather supple and flexible, but at the same time chaos could result and a clash of authorities.
An adhocracy is a type of organization where decisions are made on the basis of the presenting situation. The use of rules or policies is limited because the assumption is that each situation will be a new situation requiring a new set of decisions. Adhocracies are typically consulting firms or legal firms. Each client presents a unique situation with new sets of rules.
There are new designs that will be the wave of the future and, in fact, are slowly but surely, gaining predominance today. First, the network organization. In a network