Foundations of management E-Book

Juan Antonio Pérez López

• Herausgeber: Ediciones Rialp
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 485

Veröffentlichungsjahr: 2021

Beschreibung

The purpose of this edition is to open new avenues up for research and resolution of problems, especially in business organizations and institutions with a great impact on people's everyday lives, in which is something easy to observe the relation among effectiveness, efficiency, and consistency. This pressing also collects the extensive experience of the author on Government Decisions and Action. Its mission is to form persons for the practice of management, taken as a profession, and to develop new knowledge in the service of persons, firms, and society as a whole. The content is divided into three parts: The Company as a Human Organization, Governance Decisions and Management Action. Juan Antonio Pérez López, who died in 1996, was DBS of Harvard University and Professor at the Institute for Advanced Studies in Barcelona Company (IESE), which he also managed. His researches and publications have been focused on issues of Business Organization, which includes and integrates anthropological and ethical aspects too. Rialp has also published his book Theory of human action in organizations.

Leseprobe

FUOUNDATIONS OF MANAGEMENT

© Juan Antonio Pérez López, 2014

© Ediciones RIALP, S.A., 2014

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ISBN eBook: 978-84-321-4483-7

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PROLOGUE 

FIRST PART THE COMPANY: A HUMAN ORGANIZATION

CHAPTER 1: BUSINESS ORGANIZATIONS AS HUMAN REALITIES

Introduction

What is an organization

Formal organization and real organization

Elements of the formal organization

Elements of the real organization

Theories or models for explaining organizations

Mechanical or technical system models

Organic models: the organization as an organism

Anthropological model: the organization as an institution

Application of models to real-life situations

The business firm as a human reality

CHAPTER 2: HUMAN MOTIVATION – Mechanistic and psycho-sociological theories

Introduction

The mechanistic theories

The psycho-sociological models

Maslow’s theory

Herzberg’s theory

McGregor: Theory X and Theory Y

The limits of the psycho-sociological paradigm

CHAPTER 3: THE ANTHROPOLOGICAL THEORY OF MOTIVATION 

Introduction

Motives of individual actions

Types of needs

Motivational conflicts and their relationship to learning

CHAPTER 4: THE INFORMAL OR SPONTANEOUS SYSTEM

Introduction

The formal system of an organization

The spontaneous or informal system of an organization

Organizational members

The operative and structural relationship of an organization

CHAPTER 5: HOW ORGANIZATIONS WORK (I) – I. The mechanistic models

Introduction

The mechanistic models

The concept of “organizational purpose” in mechanistic model

The nature of the “fund of incentives”

Types of power

The intrinsic limits of “coercive power”

The extrinsic limits of “coercive power”

CHAPTER 6: HOW ORGANIZATIONS WORK (II) – II. The psycho-sociological models

Introduction

The psycho-sociological models

The psycho-sociological notion of “organizational purpose”

CHAPTER 7: HOW ORGANIZATIONS WORK (III) – III. The anthropological models

Introduction

The concept of the organization’s unity

The anthropological model

The business organization as an institution

SECOND PART: GOVERNANCE DECISIONS

CHAPTER 8: THE FUNCTIONS OF MANAGEMENT

Introduction

The content of management processess

The models or paradigms of management

The strategic dimension of management

The executive dimension of management

The leadership dimension of management

The nature of leadership

The development of authority

The loss of authority

CHAPTER 9: EVALUATION OF MANAGEMENT DECISIONS (I) – I. The effectiveness criterion

Introduction

The effectiveness criterion in management decisions

CHAPTER 10: EVALUATION OF MANAGEMENT DECISIONS (II) – II. The efficiency criterion

The efficiency criterion in management decisions

The concept of efficiency

CHAPTER 11: EVALUATION OF MANAGEMENT DECISIONS (III) – III. The consistency criterion

The consistency criterion in management decisions

Extrinsic, intrinsic and transcendent motives in decisions

Affective satisfaction: sentiments and emotions

CHAPTER 12: ETHICS AND MANAGEMENT – The application of the consistency criterion

Introduction

The contents of “business ethics”

Personal and professional ethics of the manager

THIRD PART: MANAGEMENT ACTION

CHAPTER 13: FORMULATION OF THE FIRM’S PURPOSE

Introduction

Subjective and objective ends of a decisions-maker

Subjective and objective ends of business organizations

The formulation of purpose in business organizations

CHAPTER 14: OPERATIONAL DEFINITION OF THE PURPOSE

Introduction

Validity and operationality of the definition of a purpose

Operational definition of a goal

Operational definition of an object

Operational definition of the mission

The generic and specific mission of an organization

CHAPTER 15: THE DESIGN OF THE ORGANIZATION

Introduction

Operational definition of purposes in business organizations

Design of a business organization

CHAPTER 16:    STRUCTURING THE DESIGN 

Introduction

The concept of manager

The management structure

CHAPTER 17:    IMPLEMENTING THE PURPOSE

Introduction

Strategic planning

Operative policies

Institutional policies

Management control

PROLOGUE

The mission of a business school is to form persons for the practice of management, understood as a profession, and to develop new knowledge in the service of persons, firms, and society as a whole.

Juan Antonio Pérez López was a professor at IESE Business School, University of Navarre, from 1962 until his death on June 2, 1996, as well as its Dean from 1978 to 1984. His profound philosophical, scientific, and mathematical knowledge led him to pour his concern for personal formation into a Theory of Action in Organizations which has constituted a major and significant step forward for scientific research.

He wrote his doctoral dissertation at Harvard on control mechanisms in business. He explored General Systems Theory, the laws of cybernetics, and other subjects which supplied valuable knowledge by introducing the systemic paradigm of organisms, viewing relationship as an essential element. Thanks to his interdisciplinary knowledge, Pérez López questioned the approach to the resolution of human problems on which the paradigm of scientists in these fields was founded.

If pressed to summarize Juan Antonio’s contribution, we would say that, from an integral understanding of the person, he examined the human dimension of problems in decision-making in an objective manner. How did he arrive at this humanist synthesis? By designing a complete rule for decision-making which both anticipates and analyzes the consequences that will arise as the problems faced by managers are resolved, neglecting none of the variables, and clearing the way for the discovery of new solutions.

His model is laid out—with all the complexity its logic entails—in his first book. Teoría de la acción humana en las organizaciones: La acción personal (1991). He later wrote Fundamentos de la Dirección de Empresas (1993).1 Why publish an English edition of this final book twenty years later? Because Juan Antonio’s anthropological theory is both timeless and very significant for a comprehensive understanding of decision-making.

Juan Antonio sought a scientific explanation of reality. He produced a positive science with the goal of assisting people in making the right decisions. His theory isn’t simply one further step in a field of knowledge developed over the centuries, nor one more variation on some recent trend. This theory amounts to a radical transformation in the understanding of human actions and organizations. One may notice an absence of bibliographical references to other authors, and to many of the problems they discuss: for instance, in organizational theory. Such a catalog was not his aim. The decision-making process he developed corresponds to a fundamental anthropological idea on human development within organizations, one which moves beyond previous theories and is more crucial than ever to resolve the great challenges that we confront as a society today.

What does Pérez López’s theory contribute to human organizations?

The November 2013 Report of the World Economic Forum (WEF) points to “the loss of values in leadership” as one of ten dangerous tendencies on a global level. Immediately afterwards, the authors inquire: “How can leaders develop a global and integral vision, uncontaminated by their own interests?” Indeed, in the interviews on which the report is based, a majority indicate their lack of trust in leaders. It is precisely this crisis of confidence which threatens the legitimacy of the institutions of the capitalist system.

The analysis of this data, to which we might add numerous other interviews indicating a similar trend, shows that mistrust arises when someone suspects a leader of seeking his own interests, or interests that fail to take into account the people affected by his decisions.

Pérez López’s theory provides the keys needed to develop leadership that inspires confidence, leadership that emanates from a person capable of integrating self-interest with the satisfaction of the needs of others. By contrast, the opportunistic behavior of someone who merely pursues his own advantage generates distrust and creates uncertainty throughout the environment. If this person also enjoys a position of power, the negative impact on trust-based relationships is even greater.

Juan Antonio was able to discern that trust and mistrust do not depend merely on the structures, systems, cultures, and/or shared values crucial to any organization. Trust arises, grows, diminishes, or is lost through the interactions between persons, hinging on the motives, intentions, and purposes of the decision-maker.

Juan Antonio shows that any action implies a process necessarily involving three elements:

1.    Interaction (action-reaction) between the agent and the one affected by his decision.

2. The agent, in whom—as we shall see further on—positive or negative learning arises, depending on the action’s consistency.

3.    The person affected by the decision, in whom positive or negative learning also arises.

Due to the dynamism of the action, which entails the interrelation of these three elements, the decision itself yields consequences for the person to whom the action is directed, but also for the decision-maker. This impact on the interacting persons produces learning which modifies their approaches to future decisions, both personal and professional, as a function of the experience being acquired. This is why the static paradigm, which acknowledges a very broad but closed array of definite and limited statements, of the “If AX, then BY,” fails to do justice to the reality of business.

There is a before and an after in any relationship’s quality, which depends on the intentions— the kinds of motives—that drive a person to action.

1.    With extrinsic motives, we seek some benefit which comes to us from the outer environment. The verbs that best capture this are have, obtain, achieve, acquire (incentives, compensation, awards, status, recognition, or prestige).

2.    With intrinsic motives, we seek to learn, or to acquire operative knowledge (skills, techniques...). The verbs here are know, learn, enjoy, or overcome a challenge.

3.    With transcendent motives, we seek the utility or benefit the action will have for other persons. The word is serve: to satisfy the real needs of persons—whether material needs, the need for knowledge, or the need for human development.

The first type of motive is common to all decision-making theories. The second is also frequently found under the label “intrinsic motivation,” although Juan Antonio has a broader meaning in mind. The third type is dealt with occasionally as altruism: “other-motivation,” with a meaning very different from Juan Antonio’s. Faced with an isolated, static notion of each of these motives, Juan Antonio provides a dynamic explanation of the workings among all three, as well as the necessary conditions for their transformation into an “inner strength” that leads to decision-making.

Juan Antonio helps us understand that any business decision (acquiring resources, production, consumption...) entails an implicit ethical meaning. He was concerned with the development of human thought as an instrument for the solution of real problems: problems that require thought, analysis, and awareness of context, so as to identify alternatives that are effective as well as just, opening up an immense panorama for business ethics.

For example, a manager motivated solely by the money he will make by selling a product, by the challenge of that sale, and/or by what he can learn, with no concern for the real needs of the customers, has not progressed beyond self-interest. This approach to action, whether the manager realizes it or not, will influence him, both in his future decisions and in the future relationships he will—or will not—be able to build with this client and other persons.

Real problems—the kind that arise in any company’s day-to-day operations—are not only matters of knowledge—how to do things, or how to maintain the capacity to do them—but are much deeper. It is relatively easy for a manager to know whether an employee is doing his job efficiently but still be unsure of his trustworthiness. An employee might have the same sort of doubt about a supervisor. How can we know whether somebody is trustworthy or not?

Juan Antonio would respond that a person can certainly become increasingly motivated to cooperate in carrying out an action plan by desirable economic results. But at the same time trust may be destroyed—and with it any opportunities to pursue that relationship in the future -, if that person discovers that the decision-maker is only concerned with his own advantage.

Trustworthiness is achieved when one is driven by transcendent motives. Trust is therefore a “personal” matter. The relationship of trust is established when the intentions of those involved in the interaction seek a mutual benefit, if this is confirmed over time. Without this premise, trust is lost: an extremely serious consequence, since the market, by itself, cannot entirely fulfill its own economic purpose. It requires relations of confidence and solidarity, but these are externals as far as the economy is concerned—since they are not bought or sold. Trust is therefore the main asset in any human organization.

One essential contribution of Juan Antonio’s theory is the analysis of action that occurs within the individual himself. Juan Antonio indicates that in any interaction three levels of learning arise simultaneously:

Operative learning: the acquisition of knowledge, skills, competencies, and abilities Evaluative learning: the value we confer upon another person, which may be positive or negative, depending on whether we consider him as:

o a value in himself, and thus treat him with respect and dignity, or o an instrument to be used, and thus subject him to manipulation, deception, or harm in order to obtain some advantage.

How does one achieve positive evaluative knowledge: that is, develop an evaluative capacity? Juan Antonio affirmed that it is essential for each person to learn to evaluate his actions a priori, so that his decisions become more and more correct, and treat persons according to their real value. In order to do this, they must take into account the following criteria/motives:

effectiveness: the extrinsic results desired

efficiency: the intrinsic impact the decision will have on the decision-maker, and consistency: the impact the decision will have on the persons in question.

At this point, we must clarify that mutual trust between two persons who enjoy freedom does not arise from a spontaneous motivation that only aims at effectiveness: that is, the achievement of particular extrinsic results. Rather, it requires:

being moved by transcendent motives: by the real value that others possess from a practical point of view: that is, respecting the dignity they possess by virtue of being persons.

-    that the motivation be rational: that it generates various alternatives that acknowledge the extrinsic, intrinsic, and transcendent effects that will foreseeably be brought about by the action, rather than being carried along by whatever is most appealing.

Thus, for positive learning to arise, three things are required:

-    that rationality selects the alternative which is effective but also always consistent;

-    that the implicit intention is always to treat the other as another “I,” appealing to his freedom and good will2; and the presumption that the other is trustworthy; he must be given the opportunity to demonstrate it.

It is clear that this type of decision is very different from the kind that arise spontaneously without previous rational consideration. It is not a matter of “gaining experience” but of creating it: of making possible those experiences that strengthen the relationship through acquaintance with the other: his motivations, intentions, or desires. As a fruit of this interpersonal relationship, the internalization of the other allows the decision-maker to discover by experience—to sense— a profound satisfaction upon finding that his actions are reciprocated.

This point opens up an immense panorama for ecology—both environmental and human—as well as for every field in which—in one way or another—the person plays a part. Environmental ecology demonstrates that human beings indulge in excessive consumption and upset the order of natural resources without considering the impact of their actions. If we cut down a tree to obtain its fruit, our action is clearly effective. We have the fruit that we sought—but we have also eliminated the possibility of doing so in the future.

As simple as this example is, it reflects just how effective an action may be in the short term and yet be inefficient with regard to future decisions. Taking reality into account—the inner dynamic of the realities and the persons with whom we interact—consistency—is of vital importance for foreseeing an action’s external consequences. From this point of view, Juan Antonio’s theory explains and predicts what will happen when we make inconsistent decisions, because—whether the decision-maker wishes it or not—the changes will have their influence on both effectiveness and efficiency.

Decisions made with consistency, along with the acquisition of positive evaluative learning, require the decision-maker to “come out of himself’ and take an interest in the other person: asking, confirming, finding out what his real needs are—and they require an adequate response to those needs. Both are necessary: to knowledge, and to take actions taken in consequence.

When we treat the other according to his needs, and not according to our own momentary advantage, we demonstrate a true interest in him. When we stop short at learning what his needs are, in order to attain certain objectives of effectiveness for ourselves or for the company, then, whether we intend it or not, we are treating him as a means to those objectives, whose value depends on his usefulness. That is, we are treating him as a resource.

The image that emerges of such a manager is that of a strategist or executive who, under the appearance of service, thinks only of himself: an egotist. And this tendency will manifest itself every time he needs to make a decision in which his extrinsic and/or intrinsic motives are set against the good of another person.

The person treated in this way will have less and less interest in cooperating with such a manager. And this can happen even if his actions bring about desirable financial results. Each action will have been effective, but their inconsistency will reduce the range of feasible options in future decisions.

As we go about evaluating the consistency of our actions, we will discover whether others are more or less disposed to interact with us again. If the other responds to this personal treatment, the value of unity will begin to arise between them in successive interactions: a value by which all possible actions will come to be feasible,3 regardless of the feelings we may have towards a particular person. It is a question of each one receiving the treatment he deserves simply by virtue of being a person.

The manager has to value a consistent option—moved by transcendent motives—under the hypothesis that the other will also be moved (to some degree) by transcendent motivation, though aware that this hypothesis may not be confirmed. This is the necessary risk entailed in building the relationship of trust indispensable to the development of his collaborators, a responsibility that goes beyond the achievement of other objectives.

When the manager is moved by transcendent motives, he is perfected as a subject, because his actions leave a mark which, like it or not,4 will alter his future trajectory. And this is true even if he discovers that his collaborator is untrustworthy, since he will have helped him to the extent possible, and this, too, will leave its mark on the other.

The “inner strength” that the consequences of the decision/action generates in the subject himself makes it easier for him to decide rightly again. When next faced with a decision that is very appealing from an economic perspective, but unjust, he will be better able to reject it, since his rational motivation will have acquired the facility of spontaneous motivation. The manager will be capable of valuing other options that are also advantageous—perhaps not as much so as the first one, or perhaps more—which are also ethical (consistent) and thus do not destroy mutual trust.

The strength that moves the manager to act in this way is given by an “intelligent heart,” one that knows how to discover in every scenario the most suitable course: he has learned how to integrate his wants and his duty, and not merely by use of the Kantian “ought,” or by equating the ethical with the economically profitable. This strength will also facilitate his avoidance of inconsistent actions, since he chooses to be ethical from a place of freedom, and not by an imposition from outside, knowing and valuing the deeper satisfaction born of establishing a relationship of trust, rather than the gratification that other goods produce.

Juan Antonio highlights the fact that ethics is based on the reality of the decision itself and not on abstract rational principles employed by ethical theories, nor on particular extrinsic effects. If rationality (the wanting) and will (the doing) increase in a consistent action plan, the affection for the other (the feeling) in the act itself will, at the same time, also increase. A manager can only grasp what a person is doing for him—what an action costs that person—to the extent that he has been capable of doing the same for him, or for another. This means entering into the circle of affectivity and gratitude for these actions, rather than remaining locked within the game of opportunistic interests.

Alongside the comprehensive rationality of Juan Antonio’s model, the use of rationality in other theories is instrumental, rationalism ignores affective human realities; voluntarism disregards or impedes the unity of the person, conceiving freedom as independence incapable of commitment; and sentimentalism replaces value with sentiment or affective response, viewing human action as a simple product of sentimental impulses.5 Pérez López insisted that the worst that can happen to a person is to enter upon a path of experience that produces satisfactions— addictions—which damage and isolate him. The one who seeks opportunistic effectiveness, or efficiency without consistency, sets out on a course of negative evaluative learning: the fruit of spontaneous motivation—through extrinsic or intrinsic motivation.

By contrast, positive evaluative learning arises to the degree that we are able to know the needs of others and bear them in mind in our decision-making. This is why Juan Antonio constantly speaks of the importance of how we make decisions, not only the results obtained, since motivational/evaluative learning continues to unfold throughout one’s lifetime.

Nothing is so eloquent as when the truth appears in someone who personifies it. We speak colloquially of a person being good if he is concerned for others and selfish if he only seeks his own interest. As we saw at the beginning, egotism is corrosive to life in society: the businessman who only chases profits, the politician who only pursues power, the scientist who only seeks a challenge, or his own reputation...

Juan Antonio highlights the difference between motives (ends, values, goods) and motivations (evaluations). And we can appreciate why he insists on this distinction: values exist in reality, which is valuable: to the extent that I possess it, I enjoy the corresponding satisfaction. Evaluations, on the other hand, exist within each subject: they vary according to the learning acquired. To fail to develop evaluative knowledge amounts, in practice, to growing incapable of seeing the damage we are causing ourselves and others with our way of acting, as well as thwarting our own future ability to maintain quality relationships.

The unified treatment of decision-making opens up an approach to make science that integrates criteria of ethical rationality, psychological rationality, and economic rationality—since human beings do not perform one action for becoming good, another for developing their cognitive and operative capacities, and yet another for increasing profits. Juan Antonio integrates anthropology into decision-making and demonstrates that this is the route to technical, scientific, or economic results.

The purpose of this edition is to open up new avenues for research and the resolution of problems—especially in business organizations - institutions with the greatest impact on people’s everyday lives -, where it is easiest to observe the relations among effectiveness, efficiency, and consistency. For many decades, both this book and Juan Antonio’s theories themselves have been a font of inspiration and a stimulus for many. To speak only of IESE Business School, we have seen prolific research based on his theories from Antonio Argandoña, Josep Rosanas, and Miguel Angel Ariño, among others. Not to mention the countless alumni who have enriched their managerial work through their acquaintance with his theories in this book, his technical notes, and their application in the discussion of countless cases. Now it is your turn, dear reader, to immerse yourself in this book and hold the treasure that Juan Antonio has placed in your hands.

Nuria Chinchilla, Professor at IESE Business School and founder of the ICWF 

Esther Jiménez, Manager of the ICWF, IESE Business School 

Marta López-Jurado, Professor at UNED

Barcelona, the 26th of June, 2014

1Pérez López's posthumous book (1998),Liderazgo y ética en la dirección de empresas. La nueva empresa del siglo XXLDeusto, Bilbao.

2 As distinct from other ways of influencing others: coercion and manipulation.

3The error of deriving moral relativism from sociological relativism, or of deducing what is good and evil from the most widely accepted customs or ways of life of a certain people or epoch, is to believe that if P is a sufficient condition of Q, it is also a necessary condition. For instance, "It's raining; the ground is wet" (one cannot infer that the ground is wetbecauseit is raining); "The car has no gasoline; it doesn't run" (one cannot infer that it does not runbecauseit has no gasoline). This is where the psycho-sociological paradigm breaks down.

4 Our freedom is not independent: it can select the beginning of a path, but not its consequences; if I choose an aim, I am bound to follow the path that leads me to it. We are conditioned by our own nature and by the learning that we are continually acquiring, both positive and negative.

5For further development of this subject: López-Jurado, M. (2010)La decision correcta.Descié De Browuer, Bilbao.

FIRST PART THE COMPANY: A HUMAN ORGANIZATION

CHAPTER 1 BUSINESS ORGANIZATIONS AS HUMAN REALITIES

Introduction

A business firm is a human organization, composed of persons who work with some kind of coordination to achieve certain goals or results. In fact, all human organizations are no more than this: groups of people who coordinate their actions to achieve goals that everyone has an interest in achieving, although this interest may be due to very different motives.

Business organizations thus resemble families, sports clubs, city councils, the army and many other organizations precisely in the fact that they are all human organizations. Of course, all these organizations, and others that we might have mentioned, also include many aspects that distinguish them from each other.

Perhaps the most obvious way to define what distinguishes them is to look at what it is that each of them normally does. Thus, it would be reasonable to say: “I acknowledge that a business is just as much a human organization as a club where a few friends meet to play chess, but it doesn't seem to me that what they have in common-being human organizations— is more important than what makes them different—manufacturing, buying and selling something on the one hand, playing chess on the other”.

No doubt someone could point out that what is important is not this difference in what they do. after all, a business could be created whose aim was to operate a social club where people could go to play chess. The important thing is that in a business all these things— manufacturing and selling cars, or running a club for chess players—are done for a different reason than the club run by a group of friends: a business seeks to earn money; friends only seek to have fun.

Viewed from this perspective, an organization composed of a group of friends who want to have fun building cars will more closely resemble the organization formed by another group of friends to play chess than the latter would resemble a chess club run as a business, or the former a car manufacturer.

In fact, we could go on multiplying perspectives in order to define differences between various types of human organizations. No doubt, for a particular case, we would find that a particular perspective provides useful insights to account for differences which, in that particular case, are very important; but that same perspective might have little bearing on many other cases.

The aim of scientific analysis is to explain in an orderly manner the various aspects which determine whether something is or is not a particular kind of thing. Therefore, one begins by studying very general aspects or properties and then goes on to consider others which define more particular cases.

Thus, if we say that businesses are human organizations, then everything that can be said in general terms about human organizations will also be applicable to them. Of course, there will be other things that are only applicable to businesses (a particular kind of human organization) and not to other kinds of organizations.

When the human side of a business is not working smoothly, the fault should not be sought in those other aspects of the business that make it a particular type of organization, such as its size, type of activity or the nature of its production and distribution processes. For this reason, the analysis of businesses as human organizations will be very useful, since it is this analysis that seeks to explain the influence of what is happening to the human side of a business organization on the behavior of the enterprise as a whole.

What is an organization?

We have already said that a human organization is a group of people whose efforts— actions—are coordinated to achieve a certain objective in which everybody has an interest, although their interests may be due to very different factors.

For an organization to exist, the mere existence of a group of people is not sufficient; it is not even sufficient that they all have a common purpose. The truly decisive factor is that these people organize themselves—coordinate their activity—by ordering joint action towards the achievement of certain results which, although perhaps for different reasons, they all consider it in their interest to achieve.

For example: the group of people on a street at a particular moment is a well-defined group—a set of specific persons—, but they do not constitute an organization. It is even likely that at least some of these people have a common purpose: to get to the other side of the city as quickly as possible. But this does not suffice for them to be considered an organization. However, if, while waiting for the bus, they start to talk about their problem and decide to share a taxi so as to avoid a wait and arrive at their destination sooner, they have now organized themselves: they will be an organization, even if only for a short period of time (as long as their cooperation lasts).

It is true that when we speak of human organizations, we are not usually referring to such ephemeral phenomena as the one just described: we usually have in mind something stable and lasting, such as families, businesses, town councils or sports clubs. Our common sense tells us-and rightly so—that for an organization to be stable and to last for a long period of time it requires certain mechanisms and the interplay of certain forces not present in ephemeral organizations, in which a group of people agree to solve a problem that affects them, their cooperation ceasing to exist once it has been solved.

However, the essential elements of an organization are already present even in these ephemeral organizations, in the same way that the basic elements of a large city are already to be found in a small village. These basic elements are: human actions, human needs and a formula or means of coordinating actions to satisfy needs. On this simple basis, we can already make an important distinction that is valid for any organization: the distinction between the formal organization and the real organization.

Formal organization and real organization

A formal organization is a formula for coordinating actions that can help to satisfy needs. The real organization is that which exists when a particular group of people decides to implement a formal organization.

The real organization includes the formal organization plus the entire set of interactions that occur between people, which, logically, are not foreseen—and, in many cases, not foreseeable—in the formal organization. The real interactions that occur within a real organization, and which are not considered in the formal organization, are termed informal organization, spontaneous organization or system and non-formalized system. (Fig. 1)

What happens in the world of non-formalized relations or interactions is of decisive importance for the life of the real organization. Something similar happens with the stars observed by astronomers: the most frequently observed phenomena are the superficial ones. But those which make whole stars vanish, releasing incredible amounts of energy, take place within the core of these heavenly bodies. The most visible and immediate aspect of a real organization is its formal organization. This is what is explained to us when we ask what an organization does, and why. However, its basic processes are to be found on a deeper level, which is determined by informal interactions, and on which the real organization depends for its future. In the following pages we will discuss in somewhat greater detail what the formal organization consists of, as well as the basic processes which ensure its existence as a real organization.

Elements of the formal organization

We have already said that the formal organization (the form in which the interactions within a real organization are explicitly organized) is only a formula, or means of coordinating actions, in order to achieve results which may help to satisfy human needs. This formula has at least two components:

a)    Production system or production rules: these define the actions to be performed by those persons who are participants in the organization so that it may operate and achieve its purpose.

b)    Incentive system or incentive rules: these define what these persons will receive in return for being members.

Anybody who participates in an organization contributes something and receives something in return for his involvement (although there may be cases in which a person only contributes or only receives). What a particular person contributes depends on his role in the production system; what a person receives depends on his role in the incentive system. The production system is that body of rules which governs the actions of individuals in order to achieve the desired results for the organization. The incentive system is that body of rules through which the benefits gained by these results are distributed among the organization's members.

Fig. 2 shows why, in many cases, an organization may be defined as a means by which individuals act upon their environment in order to achieve results which would not be achievable without the joint effort coordinated by the organization.

We have already seen that a formal organization is only a theoretical possibility. For this organization to actually exist, there must be people who want to and are capable of organizing themselves in this fashion. Before speaking of real organizations, however, it should be noted that a formal organization cannot be formed by just any pair of production and incentive systems. If the production system is unable to produce whatever is necessary for the incentive system to be applied, a formal organization defined by both systems would not be possible: it would be a theoretical nullity.

Very similar to this “impossible organization” are the utopian organizations which, in order to operate, require people or an environment which does not exist in reality. A large number of the “solutions” that are generally proposed to serious problems by a group of friends chatting about them could be categorized as utopian organizations.

We mention these extreme cases because they may help us gain insight into one aspect of a good understanding of real organizations; those which exist and are in operation, or those that may appear in reality at any time.

This aspect is the following: it is not enough merely to be possible (i.e., not contradictory or utopian) for a particular organization to actually exist. In order for an organization to exist and operate, three basic factors are required:

1. The formulation of certain goals or results which may be effectively achieved by implementing the production system, and whose achievement would enable the incentive

system to be implemented so that people will be satisfied:so that they actually receive what they expect from the organization.

2.    That the people acting in the organization can do what the production system requires them to do.

3.    That they actually want to do what the production system requires them to do.

These three points summarize what are considered to be the basic functions or tasks of an organization's managers: the body that governs an organization. Although they can be defined in a number of ways, they are usually given the following names:

1.    Operational definition of purpose, which specifies the results to be achieved by the organization and how the organization's members must act in order to achieve them.

2.    Structuring the definition of purpose: that is, finding the persons who can perform the different tasks specified by the operational definition and assigning the corresponding task to each of them.

3.    Implementing the purpose: that is, making sure that each organization member is actually motivated to perform the tasks assigned to him.

Elements of the real organization

We have seen that for a formal organization to exist in reality—to be a real organization—the results it intends to achieve must be explicitly defined (operational definition of purpose), each of the participants in the organization must know what he has to do (structuring the definition of purpose) and must want to do it (implementation of purpose).

These three processes—which we will call definition of purpose, communication and motivation, respectively—may be very simple or very complex. In an ephemeral organization, such as the one we mentioned previously (the group of people who agree to take a taxi so that they can get home sooner), these processes scarcely exist, occurring at the same time and with very little prior discussion.

In stable organizations which are expected to last for a longer period, the function of what we call management is to arrange matters so that these three processes are properly executed, because the survival of the real organization depends on them. Any serious error in the definition of purpose, communication or motivation will cause the organization to disappear. These processes are the true vital processes of any real organization.

We said previously that all the interactions that occur among the members of the organization are to be found in the real organization. We have included in what we called the informal or spontaneous organization those interactions which are not regulated by the formal system. Therefore, we can also say that in so far as these informal interactions influence those three vital processes, they will be interactions that affect the life of the organization, although they may not be defined or regulated in any formal manner. Of course, there will also be many other interactions in this spontaneous or informal world that have very little or no bearing on the organization's operation. The criterion for defining whether they have any importance has to be that of their possible influence on these basic processes. This criterion is not easy to apply.

For example, if two employees working together in a company department are football fans, there is no doubt that they will interact quite a lot by talking about the subject. At first sight, it would appear that these interactions would have little or no effect on the organization's functioning. In most cases, this may be so, but it would be advisable to bear in mind that this fact might have some influence on either communication or motivation (it would not be the first time a manager had problems trying to get certain employees to do some extra work the day after their local team has been beaten).

The example is a trivial one, but precisely for this reason it shows how apparently trivial things may come to affect the organization's vital processes. For these processes are truly vital, not only in so far as they determine the organization's life, but also in that other primary meaning we refer to when, in our attempts to express a complex reality, we say that it is “life itself’.

In a living, existing organization, the definition of purpose, communication, and motivation is not something done once and for all, nor only at certain times in accordance with a schedule. Rather, it is a continuous process. An organization is always defining purposes (identifying things that have to be done), communicating and motivating.

This should not be understood to mean that the organization is always changing its purposes, what it has to communicate, or the way it motivates: those kinds of changes are rather the exception, like social revolutions. The statement should be understood to mean that certain general purposes become more specific, and that more precise definitions are given regarding what should be done under the circumstances currently prevailing; refinements of the purpose along those lines must be communicated individually, and motivation also has to be secured in order for the organization to continue its operations.

Theories or models for explaining organizations

Even a superficial analysis of the processes of purpose definition, communication and motivation shows that, besides the difficulties that each raises in its own right, all are also substantially complicated by their mutual interdependence. Thus, it is apparent that:

a)    The quality of the definition of purpose will affect the extent to which the needs of the organization’s members can be satisfied. On the other hand, however, the satisfaction of needs is a driving force in motivating individuals to cooperate with the organization.

b)    The definition of purpose determines the actions that must be coordinated, which means that any refinement or development of the purpose implies a development of the communication process.

c)    The performance of specific tasks required of members will, in turn, affect their motivation to cooperate.

Given all these complications, it is not surprising that simplified models or images of reality have been devised in order to improve our understanding. These models have become the rationale for different theories that have been formulated about human organizations.

Leaving aside the secondary differences which do not affect the primary concepts we are dealing with, there are only three major groups of theories or models—three paradigms—to explain the behavior of organizations. These are:

-    Mechanical models (the organization as a technical system)

-   Organic models (the organization as an organism)

-   Anthropological models (the organization as an institution)

A human organization is an anthropological reality: that is, a group of people who have come together to do something jointly. However, it is sometimes useful to represent this

reality through a simplified image—to reduce it to a model that leaves out some of its aspects--in order to analyze others in greater detail (the process is like the one we use when we analyze a map instead of studying a piece of land on site).

This reduced representation must be treated with great care, with full awareness of that which has not been included in it and of the difficulties that may arise interpreting, in reality, what has been found through analysis of the model.

For example, a machine is controlled by certain processes, and there are also control processes in an organization. However, the meaning of control in each case is very different, and we would learn little about control in human organizations if we only studied control processes in machines.

We will discuss later the dangers of using mechanical or organic models to represent organizations. First, however, it would be useful to take a closer look at the organizational “image” that each of these models or conceptions proposes, and how well each represents the processes of purpose definition, communication and motivation.

Mechanical or technical system models

In a technical system, the organization is considered to be a simple coordination of human actions whose goal is to produce and distribute a series of objects and/or services. In fact, given that human actions are only organized to produce something outside of themselves (that is, their objective side, ignoring their subjective side or the impact they produce on the subject who performs them), a technical system organizes the interchange of “objects” or “things” (some of these being human actions).

The organization thus appears as a more or less complex machine that produces some things and consumes others. The particular way in which it produces things is determined by the production system, which consists of a set of roles or functions that the system will attempt to specify as accurately as possible (as with parts or components of a machine). The nature of consumption is determined by the incentive system, which one attempts to relate to the production system so that what a person receives corresponds as closely as possible to his productivity: that is, his contribution to the production system's operations.

A technical system does not take into account the personal motives, needs or interactions which are not included in the production system. In fact, any relationship that might exist is established between roles or functions, not between people. A technical system only encompasses the formal organization and ignores—leaves outside of its field of analysis and explanation—all those informal aspects which, in addition to the formal organization, are included within the real organization.

On the basis of this abstraction, technical systems can achieve greater precision in the analysis of all issues having to do with the achievement of maximum production and minimum consumption. Let us not forget, however, that the assumption underlying this analysis is that everything not considered in the model—the entire range of people's non-formalized needs, motives and interactions-is irrelevant in the concrete case to which the results of the analysis are applied.

Every experienced manager has had to face, on many occasions, opposition by some members of his organization when he tries to replace one procedure with another that is “technically” better. The same basic error underlies many of these difficulties, namely, thinking that what appears best in the reduced image offered by the technical system is also best in that complex reality which is the real organization.

The processes of purpose definition, communication and motivation are considerably simplified in a technical system. Purpose definition only seeks to establish operating goals which, depending upon specific circumstances, may be attained by the production system. This process is usually called strategic planning, and it seeks to couple the capacities of the production system with the particular state of the environment prevailing at a given time. The goal is to achieve the most production with the least consumption. The communication process seeks only to convey the necessary information to the various decision centers of the production system, in order to enable the operating goals to be achieved by means of joint action. The motivation process is reduced to the use of an incentive system as a means of distributing incentives: that is, arranging things so that the amount a person receives from the organization increases in accordance with his contribution within the production system (and also so that the amount he receives does not fall below the minimum acceptable to motivate him to contribute at all).

A large portion of business management literature—about the entire management process or certain aspects of it—bases its analysis on a picture of organizational processes which uses the technical system as its underlying model or paradigm. Although lip service is often paid to the need to take into account other aspects of organizations, the core of the discussion is based on an explanation of the processes as reflected in a technical system.

The use of these models as the conceptual basis of a particular author's statements is readily recognizable. One need only look at the ultimate goal assigned, explicitly or implicitly, to the organization. Whenever this goal is reduced to the optimization of the production/consumption ratio (attempting to optimize production at certain levels of consumption, or to minimize the consumption of resources used for a certain level of production, or to maximize the difference between the two), the underlying model is the technical system.

The models, as such, vary considerably, but they all have this feature in common. Their basic differences lie in the various postulates they make regarding the nature of human knowledge, the role of knowledge in decisions, and the way in which decisions are made. The image of the person—the model of man—that they use will range from the one traditionally used in economics (economic man), to the slightly more complete image (since it takes into account—at least in part—the limitations imposed on human knowledge) introduced by Herbert Simon under the name administrative man1.

Any of these models of the human being is consistent with our model of an organization conceived of as a technical system, since the differences used to establish our classifications are to be found at a deeper level: that of the motives for human action and their relationship to human needs.

Organic models:the organization as an organism

An organic model seeks to explain the coordination of actions for the satisfaction of present motivations, that is, the motivations actually experienced by those who participate in the organization. Of course, an organism includes a technical system (it also organizes an interchange of objects through its formal organization), but also goes beyond it.

The production system and incentive system—that is, the formal organization—is explicitly considered to be but a partial aspect of the entire organization. The informal organization is also taken explicitly (not just residually) into account as an integral part of the model used to represent the organization. Moreover, an attempt is made to represent and account for the interactions between the informal organization and the formal one. The aim is to analyze the influence of the informal system on the behavior of the organization.

An organism's function is not only defined—as with the technical systems—by the achievement of the goals that the formal organization pursues. In the case of organic models, this function also includes preserving people's actual motivations, taking into account the satisfactions they obtain through their interactions within the informal system.

Just as a technical system views the organization as if it were a machine—a coordination of material elements—an organic model views it as a social group—an association of individual persons in a society which they join voluntarily in order to satisfy a series of motives. The sharpest difference between the organism and the technical system lies precisely in the fact that the latter fails to go beyond the level of objects, while the former encompasses the level of subjects and considers their actual motivations for cooperating with the organization.

Later on, we will discover the consequences of this difference. For the time being, it is sufficient to see that it is obviously a very different thing, for example, to organize a group of people so that each one may have certain foods, than it is to organize them so that each may satisfy (as far as possible) his appetite (as he sees fit) on the basis of the others' production capacities.

Clearly, although the formal organization may be a part, or aspect, of the latter, this latter goal is much more comprehensive, complex and complete than the former. This is not only due to the greater or lesser variety of the diet to be taken into account when defining purposes in the respective organizations, nor even to the greater degree of involvement required in the latter for defining the particular food products to be used, but, above all, to the greater interaction required between consumers and producers for the operation of the production process.

These points, and other similar ones, have direct consequences for the motivation of the organization's members, in their roles as consumers and as producers as well. This is so— and this is a basic difference between a technical system and an organism—because an organic model seeks to analyze the coordination of human actions not only by looking at their objective side (what they produce) but also at their subjective side (their greater or lesser appeal for the persons who perform them). It must be this way because the “efforts” or “actions” of the organization's members actually do affect their motivations, and it is precisely these motivations that the organization seeks to satisfy.

Within the organic model, the process of defining a purpose in an organism seeks not only to adapt it to its external environment by strategic planning, as in a technical system; this process also has to consider the organism's adaptation to what we might call its internal environment (which is the informal organization). In other words, the specific performance goals, determined by the process of purpose definition, seek not only external achievement but also acceptability by the people who have to achieve them (internal achievement). This acceptability is what guarantees the satisfaction of people's actual motivations, in so far as motivations are affected by what people are asked to do. For this reason, the process of purpose definition in an organism is basically a process of negotiation.

The communication process seeks not only to convey the information necessary for achieving the goals which have been set by means of the definition process. An additional feature of the communication process in an organism is its attempt to facilitate “upward communicationthat is, the transmission of information about the members’ actual motivations, so that members may influence the definition of purpose. The same could be said about lateral communication, which is usually necessary to define and specify the operating goals.

The motivation process is not assigned entirely to the incentive system. It is recognized that only some of the members' actual motivations can be satisfied by means of it. Function—or role—allocation in the production system is also an important part of the motivation process, as are participation and negotiation in the purpose-definition process.

Thus, it is apparent that the complexity of the purpose-definition, communication and motivation processes, as they appear in an organic model, is far greater than in a technical system. In the latter these processes are not only distinct, but separate. In an organism, they may be differentiated, but basically they are different aspects of the same process: the process of management.

It can therefore be said that the process of management in an organism consists of defining purposes while communicating and motivating at the same time. The decisions made in order to keep the organism in operation will normally affect what has to be done (definition of purpose), what has to be transmitted (communication) and the satisfaction of the persons participating in the organization (motivation).

When the organization is viewed as an organism, one no longer seeks more or less complicated rules for optimizing and maximizing particular parameters. This second type of model necessarily includes two different levels of objectives, which normally cannot be maximized simultaneously.

One of the levels includes the satisfaction of actual motivations in so far as it is caused by what is received from the organization. The other level includes the satisfaction of actual motivations in so far as it is produced by what is done in the organization. The simultaneous maximization of both levels can only be achieved under very particular conditions.

Think, for example, of the maximum satisfaction for a company's customers (the best product at the cheapest possible price) and compare that with the maximum satisfaction for the producers of a product (the product they most enjoy making at the greatest possible profit). The difficulty of simultaneously maximizing both levels is readily apparent. In fact, any attempt to do so would lead to the utopian or contradictory organizations we discussed earlier. We would be missing the real problem.

A realistic approach to the problem would start from the fact that there is a wide range of product and price combinations that are adequate to satisfy the actual motivations of both consumers and producers. Within this range, the organism is viable. Its viability would increase if any of the four variables involved (the product's value to the consumer, the product's affordability to the consumer, the attractiveness of making the product to the producer, the producer's earnings) were to increase without adversely affecting the others.

Even in this simple example we can see that by conceptualizing this interchange organically we bring to light possibilities that remain hidden when we merely consider it technically. Specifically, it seems impossible for earnings to grow without an adverse effect on the consumer's costs. However, there is nothing to prevent growth in the product's value to the consumer from being compatible with a parallel increase in the attractiveness of producing it to the producer (even aside from the case in which this occurs due to a technological change). Experience has verified that a great number of improvements in products or services have been achieved simply by increasing the motivation of the people who produce them.

through closer, often informal, contact with the users.

If one had to set a single goal for an organism, this could only be the growth of what we call the organism's viability, that is, its vitality. This growth would mean the organism's closer adaptation to the satisfaction of its members' actual motivations.

Anthropological model: The organization as an institution

An institution approaches the coordination of actions as a means of satisfying the real needs (or potential motivations) of the organization's members. An institution includes an organism: that is, it also organizes actual motivations (what individuals currently desire), in addition to its technical system. The difference with respect to an organism is to be found in the fact that it takes the organization to a deeper level than that of actual motivations.

The institution seeks to satisfy actual motivations, but in such a way that this satisfaction is not harmful and, as far as possible, is beneficial for all of the person's needs (that is, including those other needs that are not directly satisfied when actual motivation is satisfied).

Whereas in a technical system the only relevant variables are the things that are done, and in an organism the things that are done and how they are done are relevant, in an institution, in addition to these two levels, it is also relevant why they are done. The goal of the institution is not only that of an organism but also that of giving meaning to all the human activities that it coordinates. The main features of an institution are its embodiment of some set of values and its attempts to elevate the motives for cooperation in the members so that they internalize this set of values. An organism views the organization as a social group; an institution views it as a social group that embodies certain values which must permeate everything it does.

In a technical system, the only value considered is the one obtained by measuring the ratio between what is produced and what is consumed. In an organism, the decisive value is indicated by the degree of present satisfaction felt by participants. In an institution, the ultimate value is the degree of future satisfaction of the people being organized. For an institution, the present satisfaction is a necessary operating condition (if actual motivations are not satisfied beyond a certain minimum, there will be no people with sufficient motivation to belong to the organization), but it is not the final goal of its operations.

For example, a company seeking to develop institutional relationships with its employees does not confine itself to providing a good salary and a task that is well designed from the point of view of the employee's capacities. It will also seek to challenge its employees with tasks that may help them to learn, to develop their potential, even though performing those tasks may be difficult and demand particular effort. Such a company could be helping its employees to grow and develop but, all other factors being equal, it would be more difficult to work there than for another company which did not assume this responsibility. Therefore, the latter company would satisfy actual motivations better than the former, but not potential motivations.