Meaning of an Organization

An organization is a tool used by people to coordinate their actions to obtain something they desire or value — i.e., to achieve their goals. An organization therefore is a response to and a means of satisfying some human need.

So, an individual or a group of individuals who believe they possess the necessary skills and knowledge may come together to set up an organization to produce goods and services. These individuals are known as entrepreneurs.

The process is known as entrepreneurship, the term used to describe the process by which people recognize to meet those needs. Entrepreneurs create organizations to satisfy their goals or needs. They may also form a group to respond to a perceived need by creating an organization.

According to Stephen P Robbins,

Organization is a consciously coordinated social entity with a relatively identifiable boundary that functions on a relatively continuous basis to achieve a common goal or set of goals”.

The above definition means the following:

Importance of Organizations

Organizations are prominent social institutions of our times. They are an indispensable part of our lives. According to Charles Perrow, “Organizations are the key phenomenon in existence today”.

We are truly a society of organizations. Organizations shape our life. A systematic study and understanding of organizations can enable us to use and control this important resource.

Organizations are entities that enable society to pursue accomplishments that cannot be achieved by individuals acting alone. An organization is a coordinated unit consisting of people (at least two) who function to achieve a common goal or set of goals.

Looking inside the organization at the people, processes, and structure will reveal the inner working of the organization that will help us understand how civilization has developed and contributed to the standards of living enjoyed by individuals around the world.

How Does an Organization Create Value?

An organization creates value through a three stage process. Each of these stages is affected by the environment in which an organization operates. The figure below explains these stages.

Figure 1.1 How an Organization Creates Value
Source: Gareth R. Jones Organizational Theory, Design and Change (4th edition), Pearson Education (Singapore) Pvt. Ltd., Patparganj, Delhi (2005), Page 29.

Stage I: Organization’s Inputs

Inputs include human resources, information and knowledge, raw materials and capital.

The way an organization chooses and obtains from its environment the inputs it needs to produce goods and services determines how much value the organization creates at the input stage.

Stage II: Organization’s Conversion Process

The way the organization uses its human skills and abilities, machinery and computers to transform the inputs into outputs determine how much value is created at the conversion stage.

Stage III: Organization’s Output

Outputs of finished goods and services is released into the environment where they are purchased by customers to satisfy their needs. Organizations that satisfy the needs of its customers will be able to obtain more resources over time and create more and more value.

Stage IV: Organization’s Environment

Sale of output allows organization to obtain new supplies of inputs. The organization uses the sales proceeds to obtain new supplies of inputs and the cycle begins again. When each such cycle adds value to an organization, it makes them grow from strength to strength resulting in expansion of its operations.

The people working in an organization are interrelated; their activities are also interrelated because these are performed only to achieve a common goal of the organization.