Module 1 Overview of Nonprofit Organizations and Their Environment

Transcription

1 Module 1 Overview of Nonprofit Organizations and Their Environment A. Organizations as open systems Introduction Organizations are ubiquitous. We are involved with them in one way or another, from the day we are born until the day we are buried. Most of us were born in hospitals. Then at a very young age we are sent to school, where we spend the better part of our growing years. When we are finished school, most of us work in some kind of organization. Some of us get married, under the auspices of legal or religious institutions; some of us get divorced, through a legal institution. When we finally leave this world, we are buried by an organization. To live effectively in modern society, we have to understand organizations. Types of Organizations Organizations are our society s primary instruments to accomplish social, political and economic goals. For a long time, social, economic and political scientists have divided society into two sectors: the private sector and the public sector. Private sector organizations produce, process and market goods and services for consumers, while turning a profit for themselves. Public sector organizations sustain the framework of our society: by providing protection against foreign attackers, criminals, unsafe products, unhealthy air and water; by building and maintaining roads and airports; by educating our children; and by providing health and social services to those in need. A public organization is any organization controlled and run by government (Heffron, 1989) In Canada these include schools, hospitals and universities, as well as various governmental departments. There is a third category of organizations. Private, non-governmental organizations performing a myriad of services which cannot be adequately provided directly through the open marketplace or by the state. They are organizations which serve the broader public interest, bodies which rely heavily upon private donations of money, government grants and volunteer labour, and which are involved in a high degree of civic engagement. Only recently have these organizations been recognized as constituting a separate and significant sector of the economy. This 'third sector' or voluntary sector or nonprofit sector as it has variously been called, can be defined as constituting all those private sector organizations that are prohibited from distributing profits to their stakeholders. Thus we have identified three categories of organizations: a) public/governmental organizations which provide goods and services without reaping a profit; b) private/non-governmental organizations which provide goods and services without reaping a profit; c) private organizations which provide goods and services for the purpose of making a profit for their stakeholders. 1

2 Definition of Organization All organizations, regardless of which sector they belong to, share certain characteristics that serve to define what an organization is: 1. Two or more people, interacting interdependently in pursuit of 2. a common goal or goals by 3. coordinating activities within 4. some type of formally structured legal entity that is 5. embedded in, and dependent on exchanges with, the environment in which it operates. This definition of an organization adheres to the theoretical perspective that organizations can best be understood using a systems metaphor. -A system is characterized by interdependent elements working together to achieve a goal -The interdependence of the elements creates an entity which is more than just the sum of its parts. Organizations are social systems and people are the basic elements of an organization. Types of Systems Closed systems. There are very few concrete examples of closed systems. They are characterized by the fact that they are completely self-sufficient and they are subject to entropy, the tendency to chaos, disorder and disintegration...their parts wear out and cannot be replaced. Closed systems are found uniquely in the realm of physics. Biological and social systems are all open systems. Early organizational theorists regarded organizations as closed systems. They saw the organization as a self-sufficient entity whose problems stemmed from and could be analysed and solved from within its internal structure without reference to the external environment. Thus the focus of organizational theory was organizational structure and internal management, with little regard to the impact of the environment on the organization. These early theorists and practitioners viewed organizations as goal-seeking entities and were most concerned with how to achieve an organization s predetermined goals with maximum efficiency. This is now known as the classical rationalist perspective of organizations and is best exemplified by Frederick Taylor s Scientific Management, Fayol s Principles of Administration and Max Weber s Bureaucracy. Scientific Management focuses on production activity. Economic efficiency is its ultimate criterion, (seeking) to maximise efficiency by planning procedures according to a technical logic, setting 2

3 standards, and exercising controls to ensure conformity with standards. The Administrative Management literature focuses on the structural relationship among the different units of the organization. Efficiency is maximised by specializing tasks and grouping them into departments, fixing responsibility according to... span of control, and controlling action to plans. Bureaucratic Theory focuses on staffing and structure as a means of handling clients and disposing of cases. The emphasis is on efficiency which is maximised by: a) defining jurisdictional areas by specialization and a clear division of labour; b) arranging all positions into a hierarchy of authority; c) appointing technically qualified personnel according to their expertise, d) whose performance is controlled and ordered by written rules and regulations; e) separating the position from the incumbent; and f) motivating organizational members by providing salaries and opportunities for career development. Bureaucracy became the dominant form of organizational structure in the industrial world. It still prevails, although conditions are changing so rapidly that newer forms of organization are beginning to take hold (see Section D of Module 1). Shortcomings of the bureaucratic systems were noticed as early as the 1920's when the Human Relations approach to management began to evolve, in part as a result of Elton Mayo s now famous Hawthorne studies. This series of experiments, which began as an attempt to improve productivity by ameliorating working conditions, demonstrated that the relationships among workers and between workers and management were more important determinants of productivity than the physical working conditions in the plant. Groups, not structure, were the most important organizational factors. The Humanists, whose ranks included Golombiewski, Argyris, Likert, Bennis, and MacGregor, criticized the bureaucratic form of organization because: a) it does not allow for personal growth; b) it develops conformity which is counterproductive to creativity; c) it ignores the power of groups and the informal organization; d) communications are thwarted due to hierarchical divisions; therefore new ideas are not forthcoming and change is difficult; e) people end up reflecting the dull, gray organization. They proposed models of job enrichment and democratic management (see Hertzberg, and Hackman and Oldham) whose culmination is a form of organization known as Sociotechnical Systems, the diametrical opposite of bureaucratic organization. Open Systems As the environment in which organizations operated became more changeable and complex, it was no longer possible for theorists to ignore the impact of environment on organizational structure and function. In Open Systems Theory, the organization is embedded in its environment, importing resources from the environment and exporting products and services to the environment. It is not that the early theorists didn t realize this, they just didn t consider it a necessary variable to take into account when describing the structure and function of the organization. 3

4 All systems we come into contact with are open systems, in other words, systems which interact with the environment. Katz and Kahn identified nine characteristics of open systems that apply to organizations: a) Open systems import resources in the form of energy, raw materials and information, from the environment. b) These resources undergo some kind of transformation to produce a product or provide a service. c) The product or service is exported back to the environment. d) Environmental reaction is then fed back to the system as an input, thus a cycle is maintained. e) Open systems are characterized by negative entropy, which is achieved by acquiring more resources to replace spent ones. f) By careful environmental monitoring, systems achieve a state of equilibrium through dynamic homeostasis. g) Open systems are also characterized by increasing differentiation and elaboration. h) Systems are hierarchical, made up of subsystems which reside within larger systems. Eg: the human body. Each subsystem has clear boundaries. E.g. the human body. I) Finally, systems are characterized by the principle of equifinality: a system can reach the same final state from differing initial conditions and by a variety of paths. In other words, there is no single best way to organize, different conditions lead to different ways of organizing. Open systems theory does not entirely negate the earlier theories of organization. However, it emphasizes the important role of the environment in determining organizational structure and performance. As we shall see later when discussing organizational environments, the various open systems theories go a long way in explaining why so many organizations fail to survive. They also help to explain critical differences that exist between nonprofit and for-profit organizations despite the shared basic characteristics delineated above. These differences will be elaborated in Section E of Module 1. Suggested supplementary readings For more information on the Classical Theories of Management and Opens Systems Theory, see Chapters 6,7,8,9 and 23 in Shafritz, Jay and Ott, Steven. Classics of Organization Theory, 2nd Edition. Chicago: The Dorsey Press, For a brief summary of the Hawthorne Studies see pages of Greenberg, J., Baron, R., Sales, C. and Owen, F. Behaviour in Organizations, Canadian Edition. Scarborough, Ontario: Prentice Hall Canada Inc.,

5 B. Nonprofit Organizations and their Environment Introduction As we have seen in Section A of Module 1, organizations are dependent on the environment for their survival. If they are unable to import energy and resources from the environment, or if their products or services are not required by the environment, then they cannot survive. Nonprofit organizations are created in response to demands from groups, organizations or individuals from the general environment. They depend on the environment for the financial and human resources necessary to carry out their activities (Heffron, 1989). There are three major open systems theories that look at the role of environment in organizational survival: Structural Contingency Theory (SCT), Resource Dependence Theory (RDT), and Population Ecology Theory (PET). Before discussing how these theories contribute to our understanding of organizations, we must define organizational environment. Definition of Environment An organization s environment is defined as all the elements existing outside the boundary of the organization that have the potential to affect all or part of the organization (Daft, 1997). Environmental Sectors Daft (1997) identified 10 environmental sectors that may have an impact on particular organizations: 1) industry, 2) raw materials, 3) human resources, 4) financial resources, 5) markets, 6) technology, 7) general economy, 8) government/legal, 9) sociocultural, 10) international. Each of these sectors may be divided into two basic components: a) the general environment, common to all organizations in a particular society, and b) the specific environment, which pertains to those organizations, groups or individuals with which the organization interacts directly. This specific environment is often referred to as the environmental domain of the organization. For example, technological change may be a common environmental factor for all organizations, but specific technological advancements may be more pertinent to some organizations which will be interacting with specific agents of that technology. Not all sectors are equally important to an organization at any given time, so that an organization will be attuned to different sectors at different times. One of the key differences between for-profit, nonprofit and public organizations is the nature of their environmental domain. Environmental Uncertainty How does the environment influence an organization? 5

6 As we have seen from our open systems model, organizations need resources from the environment, their products or services have to be desired by the environment, and they need information from the environment to monitor these other two needs. As long as an organization can foresee its needs being fulfilled by the environment, and predict the demands from the environment for its goods or services, it can continue to function in the way that it always has. However, as any part of the environment becomes more uncertain, the organization will have to adapt to the new demands or contingencies. Environmental uncertainty, as defined by Pfeffer and Salancik (1978), refers to "the degree to which future states of the world cannot be anticipated and accurately predicted." Environmental uncertainty is problematic to an organization only when it involves an element critical to the organization. Environmental uncertainty increases or decreases as environments vary along five basic dimensions: a) homogeneity - heterogeneity: the number and diversity of constituencies that influence the organization. b) concentration - dispersion: the degree of interconnection among components of the environment c) stability - turbulence: the rate and magnitude of change in the environment d) resource scarcity - resource munificence: abundance and availability of resources e) hostility-supportiveness: extent of competition and level of acceptance of the organization Robert Duncan proposed a two dimensional model of uncertainty in which he identified environmental changeability and environmental complexity as the determinants of uncertainty. Environmental changeability refers to whether elements in the environment are stable or unstable. An environment domain is stable if it remains the same over a period of months and years. Under unstable conditions environmental elements shift often and abruptly. Public utilities operate in stable environments, whereas the garment and airline industries have been unstable in past years. Environmental complexity refers to the heterogeneity of elements in the environment, ie the number of dissimilar elements and organization has to deal with. The combination of these 2 dimensions can help ascertain the level of environment uncertainty. Uncertainty is highest when the environment is both unstable and complex. Structural Contingency Theory The earliest studies investigating the effects of the environment on organizational structure were carried out by Burns and Stalker, in England in the early 60's. They compared firms in a dynamic, changing industry to those in a stable, established industry and found important structural differences. In the stable industry successful firms relied on formal rules with decision making very centralized, and narrow spans of supervisory control. In the more dynamic industry, spans of control were wider, with less formality and less centralization. In other words, they found that an organization s structure 6

7 was contingent on the kind of environment it was operating in. Following up on the Burns and Stalker studies, Lawrence and Lorsch (1967), observing that different units of an organization face different types of environments, found that each subunit develops a structure matching its own environment. The successful organization was one which differentiated according to environments, but which was able to integrate the diverse elements. Successful coordination was key. Thompson (1967) elaborated further on the role of various subunits in the organization. He differentiated between the organization s central technical core, which defines the essence of the organization, and its boundary-spanning units, which interact with the environment. According to Thompson, the technical core has to be protected from the vagaries of the environment in order for the organization to be able to function properly and continue to exist. Therefore, organizations create positions or departments to deal with the environment to make sure that both the required inputs from the environment are reaching the technical core, and the products or services output by the technical core are being distributed to the environment. These departments, which work with environmental elements, serve both buffering and boundary spanning roles. The buffering role is to absorb uncertainty from the environment by: 1) attempting to smooth out fluctuations in the environment; and 2) to ration during high demand periods and stockpile during slack periods. The boundary spanning role is primarily concerned with information gathering and dissemination. It is important for the organization to be informed about changes in the environment, and also to present the organization and its product to the environment in a favourable light. Resource Dependence Theory As the open systems model clearly demonstrates, organizations are not internally self-sufficient. They require resources from the environment and thus become interdependent with those elements of the environment with which they transact to obtain resources. Pfeffer and Salancik (1978) who authored what is now referred to as Resource Dependence Theory, see organizations as constantly striving to reduce their dependence on the environment by acquiring control over their resources. Therefore, environmental scanning plays a central role in the organization's decision-making processes and its strategic adaptations. The two basic principles in the resource dependence argument are: a) organizations respond more to demands of elements in the environment that control critical resources b) managers and administrators attempt to manage their external dependencies to ensure survival and acquire more autonomy. Dependence on the environment makes external constraint and control of organization behaviour 7

8 inevitable. Organizations are confronted with numerous demands, many incompatible. The three most crucial factors in determining dependence are: a) importance of resource b) extent of demanders discretion over resource allocation c) paucity of alternatives or concentration of demanders control Organizations may undertake two types of strategies: either establishing a negotiated environment, or altering the pattern of interdependence by forming mergers, joint ventures, interlocking directorships, executive recruitment or changing their environmental domain through diversification and divestment. They may also attempt to influence the environment through advertising and public relations, political activity and lobbying, formation of trade associations and illegal activities. Population Ecology This theory authored by Hannan and Freeman, 1978, 1989, differs from the others in that the focus is not on individual organizations but rather on populations of organizations. It uses a biological evolutionary paradigm to answer the question: "Why are there so many different types of organizations?" The answer lies in the fact that organizations suffer from "relative structural inertia". In other words organizations find it very difficult to make changes quickly enough to keep up with the changing demands of the environment. According to the theory, the environment selects organizations or rejects them. Every organization has to find a niche for itself if it is to survive. As long as an organization is fulfilling the demands of the niche, it will survive. However, niches change and organizations usually cannot change quickly enough, so they die and new organizations take their place. This is what accounts for the variation in organizations. It is a question of the survival of the fitting. The environment selects a reliable form, once selected the organization institutionalizes the successful form. This leads to structural inertia, making change difficult. The organizational form is retained as long as the environment doesn't change. When the environment changes, old forms, unable to change, die, and new forms rush in to take their place. There are two types of organizations: Specialists and generalists. Specialists offer one service or product. In the terms of PET, they serve only a single niche. Generalists, have various services or products, thus they straddle niches. When the environment changes, specialists usually die, but generalists can ride out changes in one niche if the others are stable thus generalists have an advantage over specialists in terms of survival in times of change. Specialists have the advantage in terms of formation in times of change. They can quickly move into a new niche and exploit it to their advantage. Research has found that organizations suffer from a liability of newness. 80% of organizations do not reach their fifth year. This is because of lack of external legitimacy which makes it difficult for them 8

9 to compete. They also have less access to resources. Internally, they have inexperienced staff whose organizational socialization takes time. C. Organizational Structure and Design Introduction In Module 1, Section A, we described organizations as open systems which transform inputs from the environment into outputs. The people within organizations have specific roles which they carry out as part of this transformation process. These roles are coordinated in a certain way in an attempt to make the process function as efficiently as possible. Thus the structure of an organization reflects the division of work and the coordination of the organization s sub-units. In most organizations these roles and their coordination are formalized into an organizational chart which represents the various positions in an organization. They are in effect a map of the structure of the organization. Structure defines three key components of the organization: a) the formal reporting relationships within an organization, including the number of levels in the hierarchy and the span of control of managers and supervisors b) the grouping of individuals into departments and the fit of departments into the organization as a whole c) the systems of communication, coordination, and integration Definition Organizational structure may be defined as the network of relationships that exists among various positions and position holders. Formal structure is a pattern of relationships that has been consciously planned and implemented. It includes formal hierarchy of authority as well as rules and procedures and other planned attempts to regulate behaviour. Key Concepts Formalization: The extent to which jobs activities and behaviour are standardized and the means by which the standardization is accomplished. Centralization: The degree to which decision-making power and control are concentrated. Vertical differentiation: Hierarchical structure consisting of a vertical dimension of differentiated levels of authority and responsibility. Differentiation by degrees of authority. Horizontal differentiation: Differentiation by specialization, often referred to as departmentalization. People with similar abilities working together on specialized tasks. Growth is a key impetus for horizontal differentiation, but is not the sole one. Environment and technology may also demand specialization. There are four major forms of departmentalization: 9

10 -Function: departments are set up in an organization according to the function being carried out. E.g. manufacturing, finance, marketing, etc. This is the most common form of departmentation. -Process: people and jobs are grouped together which are needed to implement a certain process. E.g. departments organized around machines or data processing equipment -Location: segregation by territories, regions, districts or countries. Where location makes a difference, a rationale exists for departmentalization on this basis. -Product or service: the grouping of jobs and activities that are associated with a specific product. GM is a prime example with its different divisions. -Client: activities and positions are grouped together in a way that is compatible with the unique needs of specific clients. These different types of departmentalization are usually applied in some combination. For example an organization which has a product or location departmentation, may have functional units within the product or geographical departments. Span of control: refers to the number of subordinates a manager supervises. This number depends on the complexity of the task performed and the amount of subordinate-superior interaction required. There is no optimal amount. Span of control is reflected in the organization's height. Flat vs hierarchical. Flat is less centralized. The larger the span of control, the flatter the organization. Line and staff: Line refers to the basic person boss relationship or chain of command that extends from top to bottom of the organization. Staff facilitates the work of the line performing services for it and providing advice and information in their special areas of competence. Eg. personnel, marketing. This relates to the view of the organization with its technical core and need for buffering. Major Organizational Forms These various characteristics are combined into four common organizational forms: Centralized functional: More prevalent in smaller firms. In these organizations, departmentalization is by function. Department heads report to central headquarters. This form is characterized by high operating responsiveness because of simple communication and decision making networks. Efficiency of this form is related to its relatively small size. Strategic decision making is secondary to operational decisions. Highly centralized. (See Figure 1.) Decentralized divisional: Consists of organizational units (divisions) that address a specific product market under the direction of a manager who has complete strategic and operating decision-making authority. This form was pioneered by Dupont and GM when they realized that with growth and expanded product lines, their organizations experienced difficulty in making centralized decisions for all products. There was an overemphasis on vertical communications at the expense of horizontal coordination which led to a fragmentation of planning. Therefore they divided their organizations into divisions. Within the divisions the structure is usually functional. (See Figure 2.) 10

11 Hybrid: These structures are most often found in large multi-product organizations, where some centralized functions are maintained. The hybrid form combines both functional and output groupings. This design retains the advantages of the both the functional and divisional design, achieving economies of scale and expertise in the functional areas while maintaining responsiveness in the divisional areas. (Hodge, Anthony and Gales) (See Figure 3.) Matrix: Organization according to ad hoc project teams from the different functional units of the organization. Designed to utilize functional expertise with environmental responsiveness. Flexible, creative, project manager can concentrate on implementation of strategic decisions, while not burdened by operating ones. The unique feature of the matrix organization is that both product and functional structures are implemented simultaneously. It violates the principle of unity of command, with two managers, a functional and project manager. (Daft; Hodge, et al) (See Figure 4.) Recently newer structures are being experimented with. Among the most successful of these is sociotechnical systems. Sociotechnical Systems: This represents a radical departure from traditional, hierarchical organizations both structurally and philosophically. The principles of sociotech can be summarized as follows (Trist, E. 1981). a) The work system, comprised of a set of activities that make up a functioning whole, is the basic unit, rather than single individual jobs b) The work group, therefore, becomes central, rather than the individual job holder c) Work is internally regulated by the group, rather than externally by supervisors d) Workers develop multiple skills to increase the response repertoire of the group e) The individual is treated as complimentary to the machine, rather than an extension of it Sociotech organizations are flat structures with at most 2 levels. One overall manager with the rest of the workers members of self-managing work teams with multi-skilled members. There is no organizational hierarchy. Much evaluative research has been done on sociotech systems. The research consistently shows increased worker satisfaction and increased productivity, when a true sociotech system is in place. Many organizations have adopted ideas from sociotech, such as the team concept, but few have converted into true sociotech systems. Actually only about 2.5% - 3% of all organizations are sociotech, despite its documented successes. Determinants of Structure Now that we have seen the various different types of structural arrangements that an organization can have, the next thing that we want to look at is what it is that determines which kind of structure an organization will choose. 11

12 Researchers have noted that the design of the organization depends on three main contextual factors: size, technology, and environment. The elements of an organization's structure that are contingent on these factors are: formalization, differentiation (both vertical, i.e. number of levels; and horizontal, i.e. number of divisions, departments, or subunits), size of administrative component, centralization, span of control, specialization, and channels of communication. These structural elements are manifested in organizations in two generic organizational forms: mechanistic or organic. Mechanistic Work tasks are specialized into separate parts Tasks are rigidly defined (high formalization) Strict hierarchy of authority Centralized decision-making and control Vertical communications Organic Employees contribute to the common task Tasks are adjusted and redefined through teamwork Less hierarchy, workers have greater responsibility Decision-making and control are located anywhere in the organization Horizontal communication Whether an organization is better served with an organic or a mechanistic structure depends on its environment and its technology. Environment The earliest studies investigating the effects of the environment on organizational structure were carried out by Burns and Stalker, in England in the early 60's. They compared firms in a dynamic, changing industry to those in a stable, established industry and found important structural differences. In the stable industry successful firms relied on formal rules with decision making very centralized, and narrow spans of supervisory control. These they called mechanistic organizations. In the more dynamic industry, spans of control were wider, with less formality and less centralization. These they labelled organic organizations. Lawrence and Lorsch (1967), observing that different units of an organization face different types of environments, found that each subunit develops a structure matching its own environment. The successful organization was one which differentiated according to environments, but which was able to integrate the diverse elements. Successful coordination was key. 12

13 Technology Technology is the tools, techniques, and actions used to transform organizational inputs into outputs. Technologies vary widely across organizations, and includes such things as machinery, employee education and work procedures. In the 1960's Joan Woodward and her colleagues were one of the first to investigate organizational technology. They distinguished between ten different types of technologies related to production, which they then aggregated into three overall categories: a) unit and small batch b) assembly line mass production c) continuing process Woodward then matched organizational structures to the different technologies and found that there were major differences between assembly line mass production on the one hand and small batch and continuing process on the other, with the former thriving under highly formalized and centralized hierarchical structures (mechanistic) and the latter under flatter less centralized organizational structures (organic). Size Size is the most powerful predictor of specialization and formalization. Basically there are two arguments for size: -size leads to a division of labour which causes an increase in subunits which leads to a greater need for coordination and therefore, for more formalization. -size leads to greater difficulty for centralized control, therefore, it leads to decentralization which needs a larger administrative component. D. Organizational Culture and Institutionalization Introduction The whole concept of organizational culture is new in the field of organizational behaviour. It is not quantifiable and conducive to description as other aspects of the organization are, and that is why it has been ignored until recently. It is an intangible that we suspect exists. The concept of organizational culture was popularized by Tom Peters in his book "In Search of Excellence". He noted that excellent organizations were those with a strong or "thick" culture -- "a set of shared values, norms and beliefs that gets everybody heading in the same direction." Definition of Organizational Culture One of the best definitions which captures the essence and uniqueness of the phenomenon is by Edgar Schein: 13

14 Organizational culture is: a pattern of basic assumptions, invented, discovered or developed by a given group, as it learns to cope with its problems of external adaptation and internal integration, that has worked well enough to be considered valid, and therefore is to be taught to members as the correct way to perceive think and feel in relation to those problems. Manifestation of Culture Culture manifests itself at three fundamental levels: a. Through observable artifacts -- eg: Physical layout, dress code, the way people relate to each other, the mission statement, etc. b. Through values, norms, philosophy and ideology Values: Our values tell us what is moral, worthwhile, good or beautiful; they may be thought of as criteria or conceptions used in evaluating things such as objects, ideas, acts, feelings and events, as to their desirability, merit or correctness. Norms: Expectations shared by group members of how they ought to behave under given a given set of circumstances. Philosophy: a particular system or set of beliefs reached by searching for the causes and nature of things governing human behaviour and the material universe. Ideology: Ideas at the basis of an economic or political theory or system. c. Through basic underlying assumptions -- around the organization s relationship to its environment, the nature of reality and truth, the nature of human nature, the nature of human activity and the nature of human relationships The Institutionalization of Organizational Culture In 1957 Selznik wrote that in new organizations, the critical leadership task is to generate myths and beliefs that infuse day to day activity with meaning and purpose. These myths provide organizational members a sense of collective identity and a justification of future action and efforts. Culture evolves through the process of institutionalization. Institutionalization is the imparting of a permanence to the organization that extends beyond the requirements of the task at hand (Selznik, 1957). It is the means by which social processes, obligations and actualities come to take on rule-like status in social thought and action (Meyer and Rowan, 1978). There is motivation to comply because otherwise actions in the system cannot be understood. Within organizations, institutionalization operates to produce common understandings about what is appropriate and meaningful behaviour (Zucker 1977). 14

15 The Institutional Environment In order for an organization to survive, it is very important for it to gain legitimacy, in other words, to be accepted by other organizations. Organizations are linked to their environments through an institutional conception of what organizations should look like and how they should perform. In the for-profit sector, it is easy to gauge the performance of an organization by measuring profit margins, market share, bottom lines, etc. For nonprofit organizations, legitimacy is harder to achieve because there are fewer measures of performance. Therefore in the nonprofit sector there is a greater emphasis on the institutional characteristics of the organization. Organizations strive to shape themselves along the lines of other nonprofit organizations that have achieved legitimacy and success. Thus elaborate structures are created in response to demands by environmental actors to convince them of the soundness of an organization. Organizational Socialization Socialization is an important function in every organization. It is the process by which new members learn how to function in the organization. It is how the organization s culture is passed on. It is what ensures that the values of the organization will be maintained. It promises continuity. The stronger the organization s culture, the greater the importance of socialization and the more formal the effort to socialize new members. Socialization begins even before a new member joins the organization. When an organization wants to attract new members, it not only places an ad describing the position that needs to be filled, it actually describes the organization, hoping to find people who are attracted to the organization because of their compatibility. This is especially true of voluntary organizations, where there are few tangible rewards. The second stage of the socialization process is the breaking in stage, making the new member comfortable, teaching her/him about the organization and the way things are done in the organization. Informing the new member what is expected of her/him. This can be done either formally or informally, but usually it is done both ways. Most large organizations have formalized socialization procedures: e.g. training programs. Whether or not organizations have training programs, socialization occurs through instructions, through friendly advice, and through observation. How about universities and fraternities and sororities? What about medical school? It is as much a socialization process as a technical learning process. All of these are complete with rites of passage. This insures loyalty and the perpetuation of status and structure for the benefit of those gaining most from it. E. Differences and similarities among for-profit, public and nonprofit organizations Intuitively we all register acknowledgement that nonprofit organizations are different from for-profit ones. Each of us may have our own conception of these differences, however it is usually not very clearly articulated. In Section A of Module 1, we provided a definition of nonprofit organization and 15

16 briefly compared them to public and for profit organizations. In this section, we will try to delineate those features that distinguish among for-profit, public and non-governmental nonprofit organizations and enumerate the similarities as well. In essence, the open systems model of organization fits all organizations, so the elemental understanding of organizations is the same. By examining this model we can compare on the basis of inputs, transformation process, outputs, common goals, environment, subsystems, coordination. The table below provides a framework for comparison. We have covered some of the subjects below in the previous sections of this module. Others we will discuss in the coming weeks. Rather than provide you with the answers, keep this framework in mind and fill in the blanks for yourself as we progress through the course. Feature Nonprofit, nongovernmental organizations Public organizations For-profit organizations Goals, mission Inputs Transformation process, including human resources and operations Outputs Feedback including performance evaluation Environment, specific and general Subsystems, including boundary spanning Coordination, including leadership and governance 16