1 Origins of Organization TheoryLearning ObjectivesAf.docx

1 Origins of Organization Theory
Learning Objectives
After reading this chapter, you should be able to:
• Apply organization theory to health care organizations.
• Define and identify the major elements of theory.
• Trace the history of organization theory and the development
of management as a profession.
• Examine the major foundational organization theories.
Ford Motor Co./Associated Press
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Henry Ford’s Revolutionary Vision:
Affordable Cars, a Caring Workplace
After creating the Model T car in 1908, Henry Ford
revolutionized the automobile industry by
instituting the assembly-line mode of production. In 1914 he
caused a national sensation by dou-
bling the prevailing wage for factory work to $5 a day. Ford
recognized that to implement his vision
of building affordable cars, he needed a workforce of skilled
and stable employees. To achieve this
objective, he offered attractive incentives such as profit sharing
to encourage his employees to save
for their futures. This policy was highly effective: In 1914 the
average Ford worker had $207.14 in
savings; 5 years later this figure was $2,171.14 (Snow, 2013).
The Model T was the first car specifically designed to be
affordable for the average consumer. Its price was made
possible by production innovations like assembly-line
manufacturing and interchangeable parts. The $5 daily
minimum wage for Ford workers and the company’s
initiatives to improve employee health and social wel-
fare were as revolutionary as Ford’s manufacturing pro-
cesses. Together, all of these groundbreaking tactics were
successful: By 1918 half of all cars on American roads
were Model Ts. The Ford Motor Company’s story illus-
trates how organization theory evolved in the context of
changes in business processes and how employee health
and well-being began to be recognized as an important
asset for a successful company.
Employers today are increasingly including wellness
programs in their health insurance benefits; a grow-
ing number offer incentives for participation and for

achieving specific health outcomes. According to the
National Business Group on Health (2012), a coali-
tion of large public and private employers that pro-
vide health insurance to more than 55 million people,
80% of member firms reward program participation,
and 38% have penalties for noncompletion. The most
popular incentives are premium reductions (used by
61% of employers); cash or gift cards (used by 55% of
employers); and employer-sponsored contri-
butions to a health savings account or similar health care–based
savings vehicle (used by 27% of
employers). Table 1.1 describes the wellness incentive programs
used by several major corporations
(Wieczner, 2013).
Copyright Bettmann/Corbis/AP Images
Henry Ford built affordable cars using
well-paid workers.
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Table 1.1: Selected employer wellness-incentive programs
Incentive plan Typical annual
value

Pros Cons Example
Educational/
awareness
$120 health risk
assessment;
$130 biometric
screening.
Simple activities,
provides good
data on workers’
health needs.
Informing work-
ers about risks
does not mean
they will take
action.
Caterpillar Inc.
cuts premiums
$75/month
for complet-
ing health risk
assessment.
Action based $200 to $350 for
actions following
assessment.
Motivates work-
ers to change
behavior.

Incentives do not
encourage long-
lasting changes.
Houston city
workers must
undertake three
tasks to avoid
$25 monthly pay-
roll surcharge.
Cafeteria $25 to $125 per
task.
Freedom to
choose health
actions.
Too many
options can be
confusing; tasks
not targeted to
specific health
problems.
JetBlue Airways
offers $25 for
teeth cleaning,
$400 for com-
pleting Ironman
Triathlon.
Progress based $100 for reaching
a healthy weight.
Rewards

progress, not
perfection.
Improve-
ments may not
be enough to
achieve good
health.
Florida Blue
insurance offers
rewards up to
$500 for reduc-
ing health risk
factors.
Outcome based Up to $200 for
quitting tobacco.
Effectively makes
workers achieve
objective health
measures.
Could be
discriminatory;
employers must
offer alterna-
tives to obtain
incentive.
Furniture maker
K1 charges
workers variable
premiums based
on health risk

status.
Targeted $100 to $125
for targeted
programs.
Personaliza-
tion boosts
participation.
Workers may
perceive person-
alized interven-
tions as intrusive.
Johnson & John-
son cuts premi-
ums by $500 for
health profile,
plus $100 to $250
for participat-
ing in tailored
activities.
Source: Wieczner, J. (2013, April 9). Your company wants to
make you healthy. The Wall Street Journal, p. R6.
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Section 1.2Organization Theory and Its Applications in Health
Organizations
Critical Thinking and Discussion Questions
Go to the National Business Group on Health’s Wellness and

Healthy Lifestyles web page to
answer the following questions:
1. Summarize the business case for employers to offer wellness
programs and to encourage
workers to participate in them.
2. Discuss the business opportunities for health insurers and
health care provider organiza-
tions in wellness programs.
3. What evidence is there that wellness programs are effective
in changing worker behavior
and in reducing employers’ health care costs?
1.1 Introduction to Organization Theory
This chapter focuses on organization theory and its applications
in health organizations.
It begins by defining theory and its principal building blocks
and explores the reasons to
study organization theory. Two fundamental conceptual models
are presented as exam-
ples. The evolution of organization theory is traced to place it
in the context of business
history in the United States. The chapter concludes by
discussing the major early organi-
zation theories that are now classics in the management
literature.
1.2 Organization Theory and Its Applications
in Health Organizations
Health organizations are complex entities that are exciting
places to work and challenging
businesses to manage. Because health organizations affect
everyone’s lives, they are also

the subject of intensive public scrutiny and regulatory
oversight. Regardless of their size,
health organizations are part of a huge and often disjointed
system with many stakehold-
ers. Whether for-profit or not-for-profit, they share a
fundamental purpose—to facilitate
the delivery of health care services to improve individual and
population health. For all
of these reasons and more, health organizations have unique
structural and behavioral
characteristics. Researchers from many disciplines have studied
the behaviors of health
organizations and the people who constitute them, mainly by
considering how general
business concepts apply to the health care field. Understanding
organization theory is
critical if health organization managers and leaders are to
succeed in their careers.
Theory Defined and Explained
In simplest terms, theory is an attempt to explain something one
observes or believes. A
more formal definition of theory is:
A scheme or system of ideas or statements held as an
explanation or account
of a group of facts or phenomena; a hypothesis that has been
confirmed or
established by observation or experiment and is propounded or
accepted
as accounting for the known facts; a statement of what are held
to be the
general laws, principles or causes of something known or
observed.
Source: From Dictionary of Theories by Jennifer Bothamley,

copyright © 2002 Visible Ink Press®, Reprinted by
permission of Visible Ink Press.
fra81455_01_c01_001-032.indd 4 4/23/14 10:00 AM
http://www.businessgrouphealth.org/resources/healthy_lifestyle
s/index.cfm
Organizations
Theories often encompass other concepts such as principles,
hypotheses, rules, laws,
and paradoxes to delineate what their authors are trying to
explain. Organization theory
focuses on individuals and teams working in business
organizations. Health administra-
tion theory draws on many different fields of study to explain
how complex health orga-
nizations work, including management, psychology,
neurobiology, sociology, economics,
anthropology, political science, and mathematics. This list
expands as researchers from
diverse academic disciplines develop new insights applicable to
health organizations.
Theory, as the conceptual statement of an idea, is the
foundation of research. Research,
whether qualitative or quantitative, supports theory. For more
formal scientific endeavors,
theory guides the formation of hypotheses, which are statements
of expected results or
relationships. In applied business research, theory underlies
problem statements, which
are concise descriptions of operational processes that need

improving.
Constructs are the building blocks of theory. A valid theory
requires identification through
at least two constructs. In organization theory related to health
organizations, common
constructs include quality, efficiency, satisfaction, performance,
leadership, success, and
other terms that require precise definition in research activities.
Variables are the defin-
ing tools for constructs; their key characteristic is that they are
physically identifiable or
have a precise meaning in the physical world. In research the
independent variable (or
predictor variable) is controlled and manipulated by the
researcher, while the dependent
variable is observed or measured for change as a presumed
result of the variation in
the independent variable. The independent variable is therefore
the presumed cause, the
dependent variable the presumed effect. As with constructs and
theoretical models, at
least two variables must be used to describe a construct.
Measures are operationalized
variables, identifiable either as numbers or categorical
descriptive terms. Complicating
elements include confounders, variables that the researcher
discovers during the study
and cannot control for, and contextual factors, a term used to
describe myriad items in
the environment that can impact the results of the study. Both
confounders and contex-
tual factors are difficult to identify in advance but important to
consider when conduct-
ing research or attempting to develop mental models of theories
(Johnson, 2009).

Theory in Action: Hospitals’ Adoption of Total
Quality Management
Researchers Kennedy and Fiss (2009) studied factors motivating
hospital administrators to
adopt total quality management (TQM) as a quality-
improvement tool. Hospitals that were
among the first to use this approach (early adopters) were
considered industry leaders, thus
distinguishing themselves from competitors. As TQM became a
common health industry
practice, hospitals that hesitated to use it (later adopters) were
perceived as old-fashioned and
lower quality care providers. Kennedy and Fiss proposed the
following hypotheses related to
the constructs of quality, innovation, and success:
• Early adopters were motivated by the perceived opportunity to
achieve economic
and social gains.
• Later adopters were motivated by the perceived threat of
incurring economic and
social losses.
(continued)
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Organizations
Rationale for Studying Theory

Studying theory allows one to think about observations and
beliefs from a wider perspec-
tive than personal experience and to apply this knowledge in a
broader context. More
importantly for health care managers and leaders, it enables a
deeper understanding of
organizations as human systems and opportunities to apply what
is learned to a variety
of administrative situations.
Why Study Organization Theory?
In today’s world organizations impact almost everyone. Most
people work for or in
organizations; if self-employed they interact with organizations
as clients. Additionally,
organizations carry out many functions of social life and are
found in every sector of
society. Health organizations have certain distinct
characteristics based on their mission
to improve health, regardless of whether they are directly
involved in health care ser-
vice delivery. Health care professionals who understand
organization theory will have an
important competitive advantage over their peers, many of
whom lack this knowledge.
Organization theory, although usually covered as part of the
general management cur-
riculum, is not considered as essential an element as such basic
business functions as
finance or marketing. Compared to these subjects and the hard
sciences that clinicians
Theory in Action: Hospitals’ Adoption of Total
Quality Management (continued)

• The motivation to achieve social and economic gains was
associated with more
extensive practice implementation.
• The motivation to avoid social and economic losses was
associated with less exten-
sive practice implementation.
The researchers divided the dependent variables into two
subsets: (a) motivation for adoption
and (b) extent of implementation. They measured motivation by
surveying hospital chief
executive officers (CEOs) about the reasons they made TQM
decisions, and supplemented these
surveys with a series of 10 qualitative interviews to better
understand how the CEOs would
interpret the survey items. To measure the extent of TQM
implementation among hospitals,
the researchers used three scores: (a) CEOs’ reported progress
in implementing TQM; (b) the
percentage of senior managers and full-time staff who had
received formal TQM training; and
(c) how many departments or TQM teams used 10 common
TQM tools. Confounding variables
for which the researchers controlled in their statistical analyses
included hospital size, whether a
hospital belonged to a multihospital system, and the number of
competing hospitals and health
maintenance organizations (HMOs) in the hospital’s geographic
area. The independent variable
of adoption timing was less complicated; hospitals that had
implemented TQM more than
4 years prior to the study were classified as early adopters, the
rest as later adopters.

All hypotheses except the first were supported by analysis of
the data. Hospitals that were early
adopters of TQM were not more motivated by economic gains
than later adopters. However,
they were more motivated by social gains. such as being
perceived as a market leader. Kennedy
and Fiss (2009) concluded that (a) both early and late adopting
hospital administrators’ TQM
decisions were based on perceived opportunities and threats and
(b) the extent of implementation
reflected their concerns about economic and social gains and
losses. Those motivated by
opportunities did more to implement TQM, and those motivated
by threats did less.
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Organizations
study, organization theory is “fuzzier,” with less precise and
objective content and count-
less theories. Organization theory scholars have not developed a
commonly accepted
conceptual model of the organization in its environment, and
much organization theory
research does not fit neatly within a specific school of thought.
While this lack of a com-
mon model is often frustrating for students, it allows
researchers to creatively study orga-
nizations by applying flexible theoretical constructs that
produce interesting and useful
insights (McKinley, Wood, & Moon, 2011).

Applying Theory to Practice
A key objective of management education is to convert findings
from research and analysis
into actionable information. Just as physicians develop, through
their training, a clinical
mental framework to diagnose and treat their patients, health
care professionals develop
an administrative mental framework to study organizations, then
use what they learn to
maximize their effectiveness working in and leading them
(Johnson & Olden, 2009). This
can be done on the job, through experience, and in the
classroom (physical or virtual)
through experiential learning. Applying organization theory
concepts and principles to
solve meaningful and relevant problems is a highly effective
way to make this “fuzzy”
discipline both clearer and more useful.
Conceptual Models
Naizaro (2012) offers a simple, results-oriented explanation of
what he calls a conceptual
framework. Its key elements are concepts based on specific
propositions, derived from
empirical observation and intuition, and placed within a logical
and sequential design. Its
purposes are to
• clarify concepts and propose relationships among the variables
in a study;
• provide a context for interpreting the study findings;
• explain observations; and
• develop theories from these observations that are useful to
practice.

Using conceptual models makes research findings
understandable and generalizable, or
applicable in a broader context and to situations beyond the
original study. They are often
illustrated with a pictorial model to show the relationship
among the parts of the theory,
as in the following section depicting two well-known
organization theories.
Maslow’s Hierarchy of Needs
The basic premise of Abraham Maslow’s (1954) hierarchy of
needs theory of motivation is
that basic needs such as food, shelter, and safety must be met
before an individual can be
concerned about higher level needs such as establishing social
relationships, developing
self-esteem, and attaining personal fulfillment. For example, a
low- or moderate-income
family without employer-sponsored health insurance might
recognize the importance of
this protection but will make paying for food, housing, and
transportation a higher priority.
As Table 1.2 indicates, the first three lower level needs are a
function of external factors,
and the latter two higher level needs are internal, or within the
individual. The highest
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Organizations
need, self-actualization, is unique for each individual. It

encompasses the desires for
achievement, personal growth, intellectual stimulation, and
autonomy. Self-actualized
employees take pride in what they accomplish, relish learning
new skills, and enjoy the
freedom to do their jobs effectively and efficiently.
Table 1.2: Maslow’s hierarchy of needs
Level and need Description
1. Physiological needs Food, water, sex, and other things
necessary
for individual and population survival
2. Safety needs Shelter, secure home and work environment
3. Social needs Contact and interaction with other people,
belonging, affection, love
4. Esteem needs Recognition, status, respect
5. Self-actualization needs Achievement, personal development,
autonomy
Herzberg’s Two-Factor
Theory of Motivation
A few years later Frederick Herz-
berg (Herzberg, Mausner, & Snyder-
man, 1959; Herzberg, 2003) adapted
Maslow’s hierarchical needs model
by compressing the five needs into
two levels of motivating factors in
the workplace. The three lower level
hygiene factors included basic con-
ditions of employment such as pay,

benefits, job security, physical and
social work environment, and rela-
tionships with bosses and coworkers.
The higher level intrinsic motivators
included recognition for skills and
accomplishments, the nature of the
work itself, opportunities for growth
and advancement, and flexibility
in how the work is accomplished.
Figure 1.1 illustrates Herzberg’s two-
factor theory of motivation. Its basic
tenets are that employees will be dis-
satisfied unless the hygiene factors
are in place. However, they will not
be highly satisfied unless the higher
level motivators are available.
High Hygiene
and High
Motivation
Low Hygiene
and High
Motivation
High Hygiene
and Low
Motivation
Low Hygiene
and Low
Motivation

Motivation
Hygiene
Figure 1.1: Herzberg’s two-factor theory
of motivation
Herzberg’s two-factor theory of motivation asserts that
employees will be dissatisfied unless hygiene factors are
in place, and they will not be highly satisfied without the
availability of higher level motivators.
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Section 1.3History of Organization Theory
Mark Murphy (2012c), founder and CEO of Leadership IQ,
reframes hygiene and motiva-
tional factors as shoves and tugs: “Shoves are those issues that
cause people to lose their
passion, enthusiasm and even consider quitting. Tugs are those
issues that get people
excited, ignite their passion, and make them committed to
staying with an organization or
boss” (para. 4). As an example, he presents the case of Pat, a
nurse at a major teaching hos-
pital. Pat’s major tugs are working with highly intelligent
people on challenging research
projects and having many opportunities to participate in studies
and even receive publi-
cation credit. Yet since the hospital instituted flexible work
schedules and changed all the

shifts, Pat’s carefully crafted arrangements for child care and
school pickups are no longer
workable. Until she can fix the shove of her schedule, the tug of
research opportunities
will not mean much.
1.3 History of Organization Theory
Organization theory developed from attempts to study and
understand life in real-world
organizations. In turn, theorists and researchers who analyzed
organizations provided
ideas for managers, leaders, and consultants to change their
organizations. As organiza-
tions have become more complex, so has organization theory
evolved to become richer,
deeper, more specialized, and more comprehensive.
Furthermore, the various “schools” of
organization theory developed during certain time periods.
Organization theory has deep his-
torical roots. Shafritz, Ott, and Jang
(2011) present a detailed chronology
of organization theory that begins
during the Jewish exodus from
Egypt. Jethro told his son-in-law,
Moses, to delegate authority over
the tribes of Israel to the most able
people, who would be named as rul-
ers of units of thousands, hundreds,
fifties, and tens. Jethro thus recom-
mended creating a hierarchy with
clearly defined levels of authority
and reporting structures. The higher
the organizational level, the greater
the authority. A hierarchical struc-
ture is most often depicted as a pyra-

mid, as shown in Figure 1.2.
The typical hospital organizational
chart also reflects a hierarchical struc-
ture, as shown in Figure 1.3.
Executives
Managers
Supervisors
Workers
Figure 1.2: Hierarchical organizational
structure
The most common organizational structure for all types of
businesses is a hierarchy.
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Figure 1.3: Hospital organizational chart
The hospital executive team’s principal members oversee
financial, patient care, and operational
functions.
Business Evolution
Health care organizations, like other forms of business, have

undergone extensive changes
over time. These organizational changes reflect technological
advances, economic devel-
opments, social trends, and political dynamics. These driving
forces of change have in
turn produced shifts in public expectations for health care
organizations and new chal-
lenges for their leaders.
Industrial Revolution
In the 18th century England spawned the Industrial Revolution
by developing factory
systems for producing and distributing products. These
industrial workplaces of mass
production were the birthplace of organization theory; they
grew to become huge, com-
plex economic enterprises, operating according to a set of basic
principles that reflected
the era’s prevailing beliefs in Europe and the United States
about the nature of work and
the relationship between employers and employees. Early
organization theory focused
Chief Executive
Officer
Legal Counsel
Chief Financial
Officer
Chief Nursing
Officer
Chief Operating
Officer

fra81455_01_c01_001-032.indd 10 4/23/14 10:00 AM
on scientific approaches to determine the best way to organize
work processes for maxi-
mum efficiency, which emphasized task specialization and the
division of labor.
A key factor in the industrial employer-employee relationship
involved the change in the
tools of production. In pre–Industrial Revolution days, workers
had their own tools and
were skilled in their use. With the advent of power-driven
machinery, factories purchased
the equipment, and workers, who often lacked special skills,
were trained to operate it.
The equipment was expensive; to justify its purchase and
maintenance as a return on
investment (ROI) required a sufficiently high level of
productivity and the lowest possi-
ble costs, including the cost of labor. In this system, workers
were considered less as indi-
viduals and more as interchangeable and easily replaceable
elements in the grand indus-
trial production system. Today health care organizations are
keenly aware of the value of
labor and its contribution to the extremely high cost of
sophisticated capital equipment
and technologies. In considering the ROI for a positron
emission tomography scanner, for
example, one must include not only the initial purchase or lease
price but also the consid-

erable ongoing costs for maintenance and the highly skilled
technicians who operate such
sophisticated equipment.
Economic Foundations of Organization
Theory
The purpose of a business organization is to pro-
duce goods and services for economic benefit and
to achieve economic goals. Adam Smith (n.d.),
considered the father of economics, articulated
the intellectual foundations of capitalism in his
1776 seminal work, An Inquiry into the Nature and
Causes of the Wealth of Nations. Through the divi-
sion of labor, organizing work for maximum effi-
ciency increases production. Smith extols labor
specialization as a means to develop skills and
refine knowledge and as the basis of a manufac-
turing process that enables one man to do the
work of many, creating higher quality products at
lower prices. He astutely notes that more highly
skilled workers can perform more work. The use
of machinery further reduces total labor costs,
which creates advantages for everyone, including
the workers. Smith’s work extends economic the-
ory into the realm of moral philosophy. A major
underlying assumption of early organization
theory was that people act in accordance with
rational economic principles; Smith delineated
these principles.
Universal Images Group/SuperStock
Scottish economist Adam Smith wrote
An Inquiry into the Nature and Causes
of the Wealth of Nations. It detailed the
division of labor and how to maximize

efficiency in the workplace.
fra81455_01_c01_001-032.indd 11 4/23/14 10:00 AM
Web Field Trip: Building Cars, Saving Lives
What a Difference a Century Makes
Detroit’s industrial ruins:
http://www.detroityes.com/industry/02modelt.php
Toyota Motor Manufacturing:
http://www.toyotageorgetown.com/tourvid.asp
1. Take a photo tour of Detroit’s industrial ruins to get a sense
of how the Industrial
Revolution shaped urban life in the United States in the early
20th century—and what
life was like for workers in the formative years of the auto
industry. Note the enormous
factories that produced the Model T Ford and other American
brand cars in Motor City
(or Motown, as it came to be known in the 1960s), as well as
other huge manufacturing
plants operating in America’s industrial heyday. For contrast,
take a brief video tour
of the Toyota Motor Manufacturing plant in Georgetown,
Kentucky. Then consider the
following questions:
a. If you were an automobile assembly-line worker in 1920s
Detroit, what would be
the most important aspects of your life at work?

b. What are the principal differences between work on a Detroit
assembly line in the
1920s and the Toyota assembly line in contemporary Kentucky?
America’s Essential Hospitals:
http://essentialhospitals.org/about-americas-essential-hospitals
/history-of-public-hospitals-in-the-united-states
2. Visit the America’s Essential Hospitals website for a photo
and description of U.S.
hospitals in the late 19th and early 20th centuries. Then watch a
brief video of the
surgical robotics being developed at the Johns Hopkins
Engineering Research Center
for Computer-Integrated Surgical Systems and Technology.
a. Are there any similarities between the hospital settings in the
early 20th and 21st
centuries?
b. List the three most important changes in hospitals then and
now.
Recognition of Management as a Profession
In the 19th and early 20th centuries, managers of large,
increasingly complex organiza-
tions faced many new challenges. Planning and organizing for
the production of goods
and the delivery of services on a large scale required them to
control and coordinate the
activities of large numbers of many different types of workers.
They also had to arrange
capital for plant financing and manage the flow of funds to
suppliers and employees
and from customers. However, the biggest challenge

transitioning from small-scale pro-
duction or service delivery in homes or small workplaces to a
large-scale organizational
system was to develop and maintain a trained and motivated
workforce. To achieve this
objective, managers had to understand how to manage people.
Paralleling the growth of manufacturing firms, other business
and institutions such as
universities, hospitals, and government agencies also became
bigger and more complex.
Like other businesses, health care organizations faced new
challenges managing their
employees in order to deliver public and private sector services
efficiently.
fra81455_01_c01_001-032.indd 12 4/23/14 10:00 AM
http://www.detroityes.com/industry/02modelt.php
http://www.toyotageorgetown.com/tourvid.asp
http://essentialhospitals.org/about-americas-essential-
hospitals/history-of-public-hospitals-in-the-united-states
http://essentialhospitals.org/about-americas-essential-
hospitals/history-of-public-hospitals-in-the-united-states
Emergence of Management as an Academic Discipline
Management gained recognition as a profession only after the
Industrial Revolution began
in the 18th century. It took another century for management to
become an accepted aca-
demic discipline. As organizations grew larger and more
complex, the role management
played in their success became more apparent, and scholars

became interested in studying
the human factors as well as the manufacturing processes that
were most effective. The first
organization theorists were practitioners who wrote about what
they learned from their
experience as managers in large organizations. They published
their findings in reports and
papers presented to professional societies. Examples of these
works include Daniel McCal-
lum’s 1856 Superintendent’s Report to the president of the New
York and Erie Railroad com-
pany, in which he notes six general principles of management.
Henry Towne’s 1886 paper,
“The Engineer as Economist,” presented to the American
Society of Mechanical Engineers,
articulates the importance for the mechanical engineer of the art
of workshop management
and proposes that the society systematically collect and share
information on the topic.
In the early 20th century, both scholars and managers sought to
establish the scientific
bases of their various theories through formal research and to
disseminate their findings
through advanced educational programs. Management as a
professional academic disci-
pline encompasses both management concepts and practices and
the activities of individ-
ual managers. Harvard University offered the nation’s first
master’s degree in business
administration (MBA) in 1908 and established a doctoral
program in business in 1922;
that same year the Harvard Business Review published its first
edition (HBS, n.d.). In 1936
a group of university management instructors founded the
Academy of Management as

an academic specialty organization, which in 1957 began
publishing the Academy of Man-
agement Journal (Academy of Management, n.d.b). Today there
are 672 MBA programs
accredited by the Association to Advance Collegiate Schools of
Business (AACSB) in more
than 50 countries and territories worldwide (AACSB, n.d.).
Health Care Management
Academy of Management members participate in 25 divisions
and interest groups focus-
ing on various management subdisciplines. Dedicated to
understanding the role of both
health care professionals and organizations in providing health
care throughout the
world, the Health Care Management Division’s research focus
areas encompass a wide
range of management topics that are industry-specific for health
organizations and work-
ers (Academy of Management, n.d.a).
Marquette University in Wisconsin established the first
baccalaureate degree program in
hospital administration in 1922, but it folded after 6 years. A
group of leading hospital
executives founded the American College of Hospital
Administrators (now the American
College of Healthcare Executives) in 1932, and the following
year the University of Chi-
cago launched a master’s program in hospital administration. By
1948 a cluster of gradu-
ate programs formed the Association of University Programs in
Health Administration
(AUPHA), which now includes undergraduate degree programs
(Haddock, McLean, &
Chapman, 2002). The AUPHA has a dual structure for

validating the quality of health
fra81455_01_c01_001-032.indd 13 4/23/14 10:00 AM
Section 1.4Foundational Organization Theories
administration educational programs: The AUPHA certifies
undergraduate degree pro-
grams; a separate but closely related organization, the
Commission on Accreditation of
Healthcare Management Education, accredits graduate programs
(AUPHA, 2013b).
1.4 Foundational Organization Theories
Because machines were the basis of productivity in
manufacturing organizations, early
organizational theorists conceptualized organizations as
machines with people, capital,
and equipment as their essential parts. The first organization
theories focused on the
structure of organizations and on the processes that made them
work with maximum
efficiency. Early organization researchers explored such basic
questions as:
• What is the most efficient way to organize work?
• What are the distinguishing characteristics of business
organizations?
• What are the essential functions of management?
• How can managers increase employee productivity?
Scientific Management
Frederick Taylor is commonly recognized as the

principal thought leader in the creation of a for-
mal body of management theory. An engineer
who invented carbon-steel machine tools, Taylor
studied manufacturing processes extensively and
intensively. Although best known for conducting
time and motion studies and pioneering the con-
cept of the efficiency expert, Taylor and his follow-
ers used an array of tools that became available
during the late 19th and early 20th centuries to
discover the principles of scientific management.
These tools included stopwatches, motion picture
cameras, slide rules to study business processes,
and both physical and mental tests for workers
(Wooldridge, 2011).
Scientific Management Principles
Scientific management represented a completely
different way for employers and employees to
view each other and to work together. According
to Taylor (1947):
Bettmann/CORBIS
Led by Frederick Taylor, scientific
management researchers sought to
decipher the principles of management
as a field of science.
fra81455_01_c01_001-032.indd 14 4/23/14 10:00 AM
The majority of these men [employers and employees] believe
that the fun-

damental interests of employees and employers are necessarily
antagonis-
tic. Scientific management, on the contrary, has for its very
foundation the
firm conviction that the true interests of the two are one and the
same; that
prosperity for the employer cannot exist for a long term of years
unless it
is accompanied by prosperity for the employee, and vice versa;
and that it is
possible to give the workman what he most wants—high
wages—and the
employer what he wants—a low cost—for his manufactures. (p.
11)
The principles of scientific management that Taylor set forth
were clear and simple, and
they raise issues that managers still face today. As with many
theories, they are easier to
talk about than to practice.
1. Use scientific methods and tools to determine the best way to
perform the work.
2. Select the best worker for each job. Managers have three
critical responsibilities:
a. carefully study the workers they supervise;
b. systematically train them to do a continuously better type of
work; and
c. pay them higher wages for their improved productivity.
3. Bring together the science and the workers. Scientific
management uses both
positive and negative incentives to align employers and
employees in a common
effort for the mutual benefit of the workers and the firm.

4. Demonstrate that managers and workers are equally
responsible for work
results. Scientific line managers are expected to prepare and
communicate plans
to their workers, conduct time and motion studies to develop
methods, obtain or
adapt tools, and set up processes for workers to achieve
maximum productivity
standards. They are also responsible for training workers not
just to do the work
better but to understand the nature of the cooperative
partnership between them
and the company in achieving results.
The One Best Way
Taylor’s research involved applying scientific methods to find
the single best method and
the optimal instrument or tool to use in performing a task, and
to validate the “one best
way” through further detailed observation and measurement.
Henry Ford used scientific
management to turn workers into specialists, arrange these
specialists in an assembly-line
manufacturing process, and offer them a package of incentives
to ensure that they worked
both harder and smarter for optimal productivity. Today health
care researchers and man-
agers assiduously study to identify and adopt best practices in
both clinical and adminis-
trative spheres, an approach derived from Taylor’s one best
way.
Health Organization Applications of Scientific Management
Hospitals have long used scientific management principles for
such functions as allocat-

ing beds and staffing operational units to care for a specific
number of patients per year, as
well as to assess nurses based on performance indicators such as
number of patients seen,
days absent, and patient record documentation detail. A recent
and growing trend is the
fra81455_01_c01_001-032.indd 15 4/23/14 10:00 AM
use of “mystery shoppers” posing as patients who report to the
medical practice, health
plan, or hospital that hired them about their observations and
experiences. Focusing on
customer service, most fill out detailed checklists about each
aspect of their encounter,
from scheduling the appointment to any follow-up
communication (Boodman, 2010).
Nebraska Medical Center (NMC) has adopted many cross-
industry best practices from
manufacturing industries. To better control supply costs, second
only to labor expenses in
a hospital’s budget, the hospital looked to Walmart as a
business example. This research
led to a partnership with Cardinal Health to manage the cost and
flow of the supply
chain. NMC now has a “just-in-time” inventory system with
state-of-the-art technology
that tracks supplies to prevent them from being lost, stolen, or
stockpiled, and a more
accurate billing system that allows the hospital to immediately
charge a patient for any

ordered supply. With a strong financial incentive for the
supplier to achieve savings above
the amount guaranteed by contract, NMC achieved $7 million in
savings during the first
5 years of activation, increased revenue capture by $750,000,
and maintained a success rate
of over 99% in having needed supplies available for end users
(Fosdick & Uphoff, 2007).
A team of managers at the Henry Ford Health System in Detroit,
Michigan, used scientific
management methods and advanced electronic technology to
conduct a time and motion
study of advanced-practice providers using personal digital
assistant devices to assess their
productivity in both inpatient and outpatient settings. The data
collected over 3 to 5 work-
days found that inpatient practitioners spent 61.2% of their time
on revenue-generating
activities; for outpatient providers the proportion was 59%. The
results from this study illus-
trate a current application of Taylor’s principles, enhanced
through modern technological
tools (Ogunfiditimi, Takis, Paige, Wyman, & Marlow, 2013).
The Gantt chart, a tool developed by one of Taylor’s disciples,
is still used widely today in
the growing field of project management. First developed in the
1890s by Karol Adamiecki,
an engineer who ran a steelworks in Southern Poland, the chart
became widely used in
the early 20th century when Henry Gantt devised a version of it
for his management con-
sulting practice. Before computers were an integral workplace
tool, Gantt charts had to
be prepared by hand, and each change required a new or revised

chart. Today it is easy to
create and update Gantt charts such as the one shown in Figure
1.4 using standard office
software such as an Excel spreadsheet (Gantt.com, n.d.);
Microsoft’s project management
program, Project, has a built-in Gantt chart creator (Office.com,
n.d.). Health organiza-
tions frequently use Gantt charts for project management
activities that require input from
multiple departments and stakeholders, such as
• building, renovating, and opening a facility (including patient
transfers);
• preparation for accreditation surveys;
• large-scale proposals or bids; and
• health plan service area expansions and new product launches.
fra81455_01_c01_001-032.indd 16 4/23/14 10:00 AM
Figure 1.4: Generic Gantt chart
Health professionals find Gantt charts useful for large-scale
project management.
Office.com (n.d.). Create a Gantt chart in Excel. Retrieved May
19, 2013, from http://office.microsoft.com/en-us/excel-
help/create-a
-gantt-chart-in-excel-HA001034605.aspx
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1/

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Task 1
Task 2
Task 3
Task 4
Task 5

Completed RemainingIn Progress
Case Study: Reinventing the Orange County Medical
Association for the 21st Century
Reflecting on her first 3 months as executive director of the
Orange County Medical Association
(OCMA), Michele Blair discovered a number of challenges
beyond those she had anticipated.
Urged by the association’s president to apply for the position
when the former director retired
after 23 years, Blair had previously worked as the OCMA’s
government relations representative
and had the fund-raising and business development experience
that the board knew the
position required.
The OCMA’s executive committee had made it clear that its top
priority was to strengthen the
OCMA’s advocacy position, especially at the local level. To
become a stronger presence, however,
the OCMA needed to grow its membership. Blair was frustrated
that most of her workday was
(continued)
fra81455_01_c01_001-032.indd 17 4/23/14 10:00 AM
http://office.microsoft.com/en-us/excel-help/create-a-gantt-
chart-in-excel-HA001034605.aspx
http://office.microsoft.com/en-us/excel-help/create-a-gantt-
chart-in-excel-HA001034605.aspx

Association for the 21st Century (continued)
spent dealing with time-consuming but insignificant matters.
Although she had an experienced
staff to handle these, they lacked ability or interest in doing so
or in developing new skills and
systems. The staff and systems she inherited were based on an
outmoded business model:
• The prior executive director functioned primarily as an office
manager and order taker
for the president and executive committee. All seven staff
members reported to her.
• Staff members spent most of their time on lower level clerical
and administrative tasks;
most had limited computer proficiency.
• The OCMA had no online administrative functions (e.g.,
dues/event payments by
credit card) or social media presence—only a slow, static
website that served primarily
as an electronic bulletin board.
Her responsibilities as a landlord were Blair’s biggest stressor.
The OCMA was proud of its
mortgage-free building and the revenue earned from tenant
rentals, but Blair quickly realized
this arrangement had costs, despite its benefits. The aging
facility had heavy maintenance and
repair needs, difficult tenants made unexpectedly heavy
demands on her time, and the staff
had limited ability for facility management. Blair found most of
the staff members’ skills and
attitudes unsatisfactory, in spite of their high performance

evaluations. The budget was tight,
so hiring additional staff was not an option. Blair knew she
needed to make some fundamental
changes in order to do her job. The only question was where to
start and how to persuade the
board of the necessity for the changes.
Reflection Questions:
1. What are the key issues in this case?
2. What should Blair’s first priority be?
3. How can Blair inform the board about the challenges she
faces?
4. How can Blair address the lack of fit between staff skills and
what she feels are impor-
tant organizational needs?
Resolution
Here are the steps Blair took to bring the OCMA into the 21st
century.
1. She documented problems with facts. When no staff member
was able or would even
try to research membership demographics, Blair recruited a
health administration
student intern, who easily and quickly found the pertinent
information and produced
tables and charts to present it, such as Table 1.3 and Figures 1.5
through 1.7.
Table 1.3: Membership penetration of selected California
county
medical societies, 2006
Component
society

2006 dues: full
dues-paying
members, dis-
counted groups,
and discounted
new members
Medical
board: num-
ber of licensed
physicians
Membership
penetration
based on num-
ber of licensed
physicians
Alameda-Contra
Costa
2,128 6,935 31%
Fresno-Madera 651 1,910 34%
(continued)
fra81455_01_c01_001-032.indd 18 4/23/14 10:00 AM
Component
society

2006 dues: full
dues-paying
members, dis-
counted groups,
and discounted
new members
Medical
board: num-
ber of licensed
physicians
Membership
penetration
based on num-
ber of licensed
physicians
Kern 273 1,049 26%
Los Angeles 2,983 26,616 11%
Marin 273 1,513 18%
Orange 1,368 8,705 16%
Placer-Nevada 216 1,192 18%
Riverside 755 2,692 28%
Sierra Sacramento 1,516 3,849 39%
San Bernardino 855 3,230 26%
San Diego 2,243 8,843 25%

San Francisco 851 5,322 16%
San Joaquin-
Alpine-Calaveras-
Amador
571 1,086 53%
San Mateo 951 2,495 38%
Santa Barbara 424 1,180 36%
Santa Clara 2,423 6,315 36%
Solano 260 778 33%
Sonoma 564 1,365 41%
Stanislaus 498 833 60%
Ventura 279 1,751 16%
Source: Orange County Medical Association. (2007, September
29). Executive board strategic planning session. San Diego, CA.
Table 1.3: Membership penetration of selected California
county
medical societies, 2006 (continued)
(continued)
fra81455_01_c01_001-032.indd 19 4/23/14 10:00 AM

2. She conducted a time study for herself and the staff by
reviewing her calendar and
asking staff members how they spent their time. Figures 1.5
through 1.7 display the
results.
3. She proposed a reallocation of her time to place more
emphasis on advocacy, meetings
to develop and nurture relationships with physicians and
stakeholder groups, and
member recruitment/retention activities, as shown in Figure 1.6.
Figure 1.5: OCMA executive director current time distribution
As part of her study, the OCMA executive director reviewed
how she currently spends her time.
Orange County Medical Association. (2007, September 29).
Executive board strategic planning session. San Diego, CA.
Administrative Work
2%
Management of Staff
15%
Advocacy
10%

Database
Management
5%
Public Relations
13%
Budget Planning and
Facility Management
20%
Event
Planning
3%
Meetings
12%
General Public
Inquiries
5%
Member
Recruitment
10%
Doctor to Doctor
5%
(continued)

fra81455_01_c01_001-032.indd 20 4/23/14 10:00 AM
Figure 1.6: OCMA executive director preferred time distribution
After analyzing how she currently spends her time, the OCMA
executive director proposed a
new distribution of time that emphasizes different priorities.
4. She laid the groundwork for staff reorganization by tracking,
aggregating, and display-
ing how staff members were spending their time (Figure 1.7)
and by proposing several
innovative ideas to attract and retain members. The board
reacted enthusiastically to
these ideas. When Blair pointed out that the current staff lacked
the ability to imple-
ment them, the board recognized that some current staff
members would either have to
acquire the needed skills or there would need to be some
changes in the staff.
Administration
5%
Management of Staff

5%
Advocacy
20%
Database
Management
2.5%
Public Relations
5%
Budget Planning and
Facility Management
7.5%
Event
Planning
5%
Meetings
25%
Public
Inquiries
10%
Member
Recruitment/Retention
15%
(continued)

fra81455_01_c01_001-032.indd 21 4/23/14 10:00 AM
Figure 1.7: OCMA staff current time distribution
As part of her study, the OCMA executive director also
analyzed how other staff members
currently spend their time.
5. When some staff members found their new job
responsibilities not to their liking, Blair
encouraged and helped them to find other work. She hired a
chief operating officer
with academic medical center physician group management
experience and strong
financial and information-technology skills. He focused on
improving the organiza-
tion’s data management systems and on developing expanded
membership benefits
through business partnerships from carefully vetted vendors.
6. She hired the student intern as director of member services,
who enthusiastically set
forth to increase membership by implementing the ideas Blair
had proposed to the
board of directors. These included:

a. Obtain more feedback and input from hospital medical staff
members and non-
members through surveys, focus groups, individual outreach and
interviews, and
web-based suggestion boxes and comment boards.
Administration
15%
Other
10%
Advocacy
4%
Database
Management
25%
Public
Relations
12%
Budget
Planning
0%
Event Planning
9%
Meetings
6%

Public
Inquiries
10%
Member
Recruitment
8%
Management of Staff
0%
(continued)
fra81455_01_c01_001-032.indd 22 4/23/14 10:00 AM
Administration and Bureaucracy
As the scientific management movement gained influence, it
also generated questions,
opposition, and alternative theories. While Taylor studied work
and organizations pri-
marily from the perspective of the individual employee, later
organization theorists
examined organizations from the executive managerial
perspective. As organizations
responded to changing social and economic developments such
as the growth of unions,
new and emerging markets, and shifting political viewpoints
and allegiances, organiza-

tion theory became more comprehensive and more focused on
the human relationships in
organizational social systems (Johnson, 2009).
Administrative Principles
A French executive engineer, Henri Fayol, proposed the first
comprehensive theory of
management in a 1916 book, General and Industrial
Management. His work had little influ-
ence in the United States, since an English translation was not
published until after World
War II. Fayol articulated 14 principles of management that he
considered universally
applicable to any type of organization (Fayol, trans. 1949).
1. Division of work: Reiteration of the benefits of
specialization.
2. Authority and responsibility: Based on the position rather
than the individual
office holder.
3. Discipline: Based on obedience and respect.
4. Unity of command: One boss gives orders to an employee.
5. Unity of direction: One boss and one plan for activities with
the same objective.
b. Develop initiatives for member subgroups (e.g., new
physician members and non-
members, international medical graduates, women, retirees,
medical students and
residents, and office managers). In addition, the OCMA
initiated committees of
interest, including Wellness, Emergency Physicians, and First

Friday Socials.
c. Introduce online membership and renewal by credit card;
update website with
new branding, new content for both physicians and consumers
(preferred business
partners, find a physician service), include a revised and
updated physician direc-
tory, and add a calendar of events.
7. Blair obtained board approval to sell the old building and
purchase a new, beauti-
ful building in central Orange County, conveniently located
near the University of
California–Irvine Medical School and a growing number of
medical-device manu-
facturing concerns, many of which were started by
entrepreneurial physicians. Soon
after the move, the OCMA started hosting monthly First Friday
Socials/networking
events for members and guests.
8. With the chief operating officer (COO) handling facility
management, Blair focused her
time and energies on developing collaborative relationships
with other associations
and community-based organizations and government officials.
fra81455_01_c01_001-032.indd 23 4/23/14 10:00 AM
6. Subordination of individual interest to general interest: The
group or the com-

pany comes first.
7. Remuneration of personnel: Fair, rewards good performance,
reasonable, uni-
formly applied, and easily understood.
8. Centralization: Tailored to the needs of the particular
company.
9. Scalar chain: Line of authority that clearly delineates
reporting relationships and
communication channels.
10. Order: For both materials and people, a place for everything
and everyone, and
everything and everyone in its or his or her place.
11. Equity: Fair and equal treatment, based on kindliness and
principles of justiceSta-
bility of tenure of personnel: Important because it takes time to
learn new work,
and turnover creates inefficiencies.
12. Initiative: Freedom and ability to propose and implement
new ideas.
13. Esprit de corps: Harmony, unity, and team spirit in the
organization.
In contrast to Taylor’s attention to workers’ tasks and how to
organize them at the fore-
man supervisory unit level, Fayol examined the organization
from the perspective of top
management. His work is therefore more focused on managing
an organization than on
managing an individual employee (Johnson, 2009).

Bureaucracy
Max Weber was a prolific German social philoso-
pher who is probably best known for his work
relating the Protestant work ethic to capitalism.
His writings, covering a broad range of topics
and fields of inquiry, were instrumental in form-
ing the new academic disciplines of sociology
and public administration in the late 19th and
early 20th centuries. Weber ’s model of bureau-
cracy, described through a simple set of charac-
teristics, is his most salient contribution to the
field of organization theory.
When asked what first comes to mind upon
hearing the term bureaucracy, some of the likely
responses today would be: stuffy, old-fashioned,
rigid, hierarchical, rule-bound, inflexible, by the
book, civil service, and stifling. Weber, writing in
the early 20th century, intended to illuminate the
characteristics found in effective bureaucracies by
contrasting them with older industrial structures
from earlier stages of industrialization. In a 1922
work published after his death, Weber proposed
several essential characteristics that enabled man-
agers in bureaucratic organizations to effectively
make decisions, control resources, treat workers
fairly, and accomplish organizational goals.
The Bridgeman Art Library/German/Getty
Max Weber created a model of bureau-
cracy that was particularly influential
in 20th-century organization theory.
fra81455_01_c01_001-032.indd 24 4/23/14 10:00 AM

Distinguishing between government “bureaus” and private
sector “offices,” Weber iden-
tified the principal elements of each (Weber, Gerth, & Mills,
1946). Table 1.4 lists these key
characteristics of a bureaucracy, with examples of each that can
be found in contemporary
health care and other organizations.
Table 1.4: Weber’s bureaucracy and its modern legacy
Weber’s characteristic of bureaucracy Applications in
contemporary
organizations
Fixed and official jurisdictional areas are
generally ordered by rules.
• Written job descriptions specifying official
duties
• Personnel classification systems
Authority to give commands is strictly lim-
ited by rules concerning the coercive power
of officials.
• Employer penalties for hostile work
environment
• Employee rights legislation and
regulations

The staff is organized in a clear hierarchy,
with supervision of lower offices by the
higher ones.
• Organization charts showing levels of
supervision and reporting relationships
Management of the modern office is based
on written documents.
• Written policies and procedures, includ-
ing performance criteria
Recruitment to positions based on special-
ized knowledge and training.
• Equal employment opportunity policies
• Affirmative action laws and regulations
Office holding is a “vocation.” • Employer expectations and
policies on
disclosure of additional employment
and conflict of interest
• Management development programs
Public monies are divorced from the private
property of the official.
• Fixed compensation and benefits
• Employee expense reimbursement
criteria
• Business equipment use policies
Source: Adapted from Jaffe, D. (2000). Organizational theory:

Tension and change. New York: McGraw-Hill, p. 90.
Administrative Behavior
The emerging field of public administration produced some
important contributions to
organization theory during the 1930s. Columbia University
professor Luther Gulick and
his British colleague Lyndall Urwick discussed structuring work
units by both purpose
and process, analyzing the pros and cons of each approach.
Grouping work by purpose
involves combining the tasks, people, and resources within a
single department or work
unit under a department director who controls all of the staff
and resources needed to
accomplish the department’s goals. This approach increases
efficiency by minimizing
fra81455_01_c01_001-032.indd 25 4/23/14 10:00 AM
coordination time and costs; however, there is less
specialization, which increases costs.
By contrast, grouping work by process emphasizes
specialization. Before the advent of
electronic health records, many hospitals employed this
approach, establishing a dedi-
cated medical transcription unit or contracting with an outside
service vendor to tran-
scribe physicians’ dictated notes into patients’ medical records.
Gulick, who served as president of the Institute of Public
Administration from 1921 to

1962, is probably best known for articulating in 1937 the seven
major functions of execu-
tive management and the acronym POSDCORB as a memory aid
for them:
• Planning: delineating in broad outline what needs to be done
and how
• Organizing: establishing the formal structure of authority and
its subdivisions
• Staffing: recruiting and training staff and maintaining
favorable working
conditions
• Directing: making decisions, giving general and specific
orders and instructions,
serving as leader of the company
• Coordinating: interrelating different work elements
• Reporting: informing superiors and subordinates about what is
going on
• Budgeting: fiscal planning, accounting, and control
Executive-Level Management
Chester Barnard drew on his Harvard Business School training
and his experience as pres-
ident of the New Jersey Bell Telephone Company to propose a
comprehensive theory of
human behavior in organizations and how managers achieve
corporate objectives through
the work of subordinates. A firm believer in many of Weber’s
bureaucratic principles such
as hierarchy, authority, rules, and explicit communications
about them, Barnard empha-
sized the role of cooperation as the basis for forming effective
social relationships among
organizational groups and individuals, especially managers. He

was also among the first
practitioner-writers to introduce consideration of ethics for
high-level managers. In his
seminal 1938 work, The Functions of the Executive, Barnard
declared that the responsibility
of the executive was to:
1. create a vision for the organization that included a moral
code of right and wrong
as well as a clear business purpose;
2. establish systems of formal and informal communication that
recognized the
value of social networks that naturally developed in the
workplace; and
3. develop and nurture cooperation among individuals and
groups through incen-
tives that included both material compensation and moral,
social, and psycho-
logical rewards.
Barnard’s discussion of employee incentives, still germane
today, is grounded in Herzberg’s
theory of motivation. The challenge of finding effective
incentives lies in either increas-
ing positive incentives or reducing negative burdens for
employees. Making work more
attractive could involve raising wages or shortening hours.
Organizations seek to make
work more attractive both by offering objective incentives and
by changing workers’ atti-
tudes. However, an organization must be economical in offering
both material and nonma-
terial incentives, since resources are limited for both types.
Furthermore, the nonmaterial

fra81455_01_c01_001-032.indd 26 4/23/14 10:00 AM
incentives often conflict with each other or with overall
organizational goals. For example,
the opportunity for personal prestige may entice some
individuals to perform at a higher
level, yet it usually involves a relative reduction in the personal
prestige of other, possibly
more productive and capable members of the organization.
Thus, the organization must be
thoughtful and selective in establishing and distributing both
tangible and intangible incen-
tives (Barnard, 1938).
Sue Brody, president and CEO of Bayfront Health System in St.
Petersburg, Florida, argues
that health care executives have an additional responsibility—to
serve as the organiza-
tion’s chief patient advocate. As such, he or she must manage
limited resources to provide
the best possible care for patients and also ensure the
organization’s financial viability.
Brody’s examples illustrate some of the difficult resource
allocation choices facing health
care leaders today:
• Should scarce capital be used to purchase a piece of equipment
that treats
a small number of patients with a very serious illness? Or
should those
funds be used for a device that treats a larger number of

moderately ill
patients, even though other (albeit less effective treatments)
exist?
• Should a hospital spend money on a much-needed emergency
department
renovation that would more effectively address the community’s
medical
needs or use those funds to improve its balance sheet, thereby
lowering the
hospital’s cost of debt and ensuring the financial viability of the
organiza-
tion in an era of stagnant revenues and increasing costs?
• Should the hospital fund a community outreach program that
may identify
those “at risk” primarily treatable by a competing facility?
(Brody, 2002, p. 1)
Applied Industrial Psychology
As interest grew in studying the science—or art—of
management, organization theorists
sought to improve employee efficiency and managerial
effectiveness by applying theoret-
ical learning to the workplace. Their work ushered in what
became known as the human
relations movement and a shift from the study of management as
a scientific process to a
multidisciplinary field that incorporated thinking from the
behavioral and social sciences
as well as engineering.
Hawthorne Studies
This project started in 1924 as a study of worker productivity at
Western Electric Compa-

ny’s huge Hawthorne plant near Chicago, which manufactured
telephone equipment for
AT&T. Harvard Business School industrial psychology
professor Elton Mayo and his pro-
tégé Fritz Roethlisberger conducted an extensive series of
experiments in the Hawthorne
plant over a 9-year period. The longest running set monitored
the output of six young
single women working in a relay switch assembly–testing room
from 1927 to 1932. Com-
pany supervisors reviewed the workers’ productivity; Mayo and
Roethlisberger periodi-
cally conducted individual and group interviews. The test
room’s informal atmosphere
allowed workers to form strong friendships. Over the study
period, productivity in the
relay assembly–test room rose significantly. The researchers
concluded from these experi-
ments that positive attitudes, careful supervision, and cordial
work group relationships
fra81455_01_c01_001-032.indd 27 4/23/14 10:00 AM
were associated with high productivity and job satisfaction. The
Hawthorne research
team also found that assembly-line productivity rose when
workers knew they were
being observed, without any other type of intervention. This
phenomenon of subjects
in behavioral studies changing their performance in response to
being observed became
known as the Hawthorne effect (HBS, 2012).

The Hawthorne experiments introduced some groundbreaking
concepts for the 1930s,
in the midst of the world’s most severe economic depression.
Mayo and his team pro-
posed ideas about motivational influences, job satisfaction,
resistance to change, group
norms, worker participation, and effective leadership that few
researchers, much less
practicing managers, were aware of. Today’s leaders take for
granted that organizations
that pay attention to human and organizational cultural
variables are consistently more
successful—but this was a controversial idea in the 1930s.
Scientific Family Management
Frank and Lillian Gilbreth were followers of Frederick Taylor
who extended scientific
management theory through the use of motion picture cameras
for more elaborate time
and motion studies. These studies and other research they
conducted after founding their
management consulting firm demonstrated a strong link between
worker satisfaction and
productivity (Education Portal, n.d.a). Later the Gilbreths
achieved widespread fame with
their 1948 book, Cheaper by the Dozen, and its movie
adaptation about how the couple
applied scientific management principles to raise their 12
children (Shafritz et al., 2011).
Human Relations
Joining Elton Mayo in the call to involve workers more in
managerial decisions were a rival
group of theorists who became known as the human relations

school. The growth of orga-
nized labor, and of industrial psychology as an academic field
of study, also contributed
to a growing struggle between scientific and humanistic
management (Wooldridge, 2011).
Participative Management
Mary Parker Follett, a social worker who became a management
consultant, was one of
the few women to write about management in the early 20th
century. Her ideas on par-
ticipative management and employee group networks were far
ahead of the times. In a
1924 essay titled “Power,” she proposed the concept of
situational leadership power by
distinguishing between participative decision making (“power-
with”) and forceful coercion
(“power-over”). “Do we not see now,” she observed, “that while
there are many ways of
gaining an external, an arbitrary power—through brute strength,
through manipulation,
through diplomacy—genuine power is always that which inheres
in the situation?” (as cited
in Lewis, n.d., p. 1). Follett’s ideas have had a strong and
lasting influence on health and
human services organizations. They are the foundation of such
ideas as shared governance,
a hospital model in which nurses have expanded authority,
responsibility, and account-
ability for patient care (Henry Ford Hospital, n.d.). Another
application of Follett’s ideas in
fra81455_01_c01_001-032.indd 28 4/23/14 10:00 AM

health organizations is the use of interdisciplinary group
network management to achieve
patient care and organizational outcomes (Kadian-Baumeyer,
n.d.).
Inconsistent Administrative Theory
In a widely quoted 1946 article, renowned management scholar
Herbert Simon noted that
for almost every principle of administration, a plausible
opposing principle exists. Intro-
ducing his thesis with a contradictory pair of proverbs, “Look
before you leap” and “He
who hesitates is lost,” Simon drives his point home with
numerous examples of alterna-
tive conflicting applications of administrative principles, such
as the health care example
below regarding public health nursing specialization:
1. A plan of action should be put into effect by which nurses
will be assigned
to districts and do all nursing within that district, including
school exami-
nations, visits to the homes of school children, and tuberculosis
nursing.
2. A functional plan of nursing should be put into effect by
which different
nurses will be assigned to school examinations, visits to homes
of school
children, and tuberculosis nursing. The present method of
generalized
nursing by districts impedes the development of specialized
skills in the
three very diverse programs. (p. 54)

Bounded Rationality
Simon’s principal criticism of classical administrative theory
was the lack of attention to
the human decision-making process in organizational settings.
Simon propounded the
concept of bounded rationality as a more realistic approach to
decision making, which
addressed the limits faced by human decision makers regarding
(a) how much informa-
tion they can access and process, (b) how many alternatives
they can identify and con-
sider, (c) how objectively they can predict the consequences of
their actions, and (d) how
rationally they are able to evaluate the alternative courses of
action. These limitations
create bounds on the administrator ’s ability to make truly
rational and optimal deci-
sions. Managers, like people generally, usually make
satisfactory decisions rather than
going through the elaborate process necessary to arrive at an
optimal decision; in most
cases these satisfactory decisions were good enough for the firm
to operate efficiently and
achieve its goals (Jaffee, 2000; Johnson, 2009).
A corollary concept of bounded rationality is satisficing, when
managers accept the first
feasible solution presented rather than spend time researching
and considering other
alternatives. Simon and his colleague James March recognized
that when organizations
are faced with a new or uncommon problem, it takes time and
resources to define the
problem, formulate alternatives, and undertake a decision-
making process to resolve

it. Since time and resources are both limited in the business
setting, there are inherent
incentives and pressures for managers to satisfice rather than
continue to spend time and
money searching for and evaluating other possible choices
(Cyert & March, 1963).
fra81455_01_c01_001-032.indd 29 4/23/14 10:00 AM
Section 1.5Summary and Resources
1.5 Summary and Resources
Chapter Summary
Studying organizations and how they work involves learning
about different types of the-
ories. A theory is an explanation of something one observes or
believes. To test a theory, a
researcher formulates one or more hypotheses stating the
expected results or relationships
among the variables measured. Research rules about how to test
hypotheses guide the
researcher in identifying and measuring variables that are
physically identifiable or have
a precise meaning.
Organization theory developed as an outgrowth of the Industrial
Revolution, when manu-
facturing shifted from homes or small workshops to large-scale
mass-production facilities,
and other types of public and private sector organizations also
grew larger and more com-
plex. Management became recognized as a profession and then
as an academic discipline;

health administration became an industry-specific profession
and discipline as well.
The first organization theorists were industrial engineers who
focused on work processes
and productivity. Frederick Taylor developed scientific
management methods to measure
and analyze worker tasks and production process to improve
efficiency and boost pro-
ductivity. In France, Henri Fayol emphasized organizing work
and workers logically to
maximize efficiency and proposed a set of universally
applicable management principles.
German sociologist Max Weber defined bureaucracy and the
characteristics of bureau-
cratic organizations that enabled managers to function
effectively and treat workers fairly.
In the United States public administration scholars Luther
Gulick and Lyndall Urwick
also sought to capture the major functions of management with
the POSDCORB acronym
(planning, organizing, staffing, directing, coordinating,
reporting, and budgeting). From
the private sector Chester Barnard emphasized cooperation
among organizational groups
and individuals in his writings on executive responsibilities.
As organization theory expanded and as academicians from the
emerging disciplines of
sociology and psychology conducted research in the workplace,
interest in the human
aspects of management grew. Pioneers of the human relations
school such as industrial
psychologist Elton Mayo and social worker turned management
consultant Mary Parker
Follett advocated more worker involvement in managerial

decisions, which laid the foun-
dation for the concept of participative management. Herbert
Simon pointed out the con-
tradictions in some of the fundamental principles of
management espoused by the classi-
cal theorists and proposed bounded rationality as a more
realistic approach to managerial
decision making. Later Simon and his colleague James March
made this concept even
more pragmatic as they noted how managers often followed the
principle of satisficing
when making decisions.
1. How does one formulate and test a theory? Describe an
example from your read-
ing or personal experience.
2. In Herzberg’s theory of motivation, distinguish between the
independent and
dependent variables.
fra81455_01_c01_001-032.indd 30 4/23/14 10:00 AM
3. Management theory evolved from the fields of economics,
engineering, psychol-
ogy, and sociology. Which of these disciplines do you consider
the most impor-
tant contributor to management theory and why?
4. What are some examples of best practices in health care

organizations? How do
they reflect Taylor’s scientific management—or not?
5. What are the advantages and disadvantages of the major
elements of bureau-
cracy for contemporary health care organizations?
6. Chester Barnard stated that an organizational vision had to
include a moral code
as well as a business purpose. How does this apply to health
care organizations?
7. Can you offer an explanation for the Hawthorne effect, or
why worker produc-
tivity increases when workers know they are being observed?
Key Terms
best practices Identifying and emulating
the methods used in the most successful
organizations.
bounded rationality (Simon) The concept
that there are limitations on humans’ abil-
ity to make optimal decisions.
bureaucracy (Weber) Organizations
characterized by formal and written rules,
hierarchical structure, and recruitment by
merit.
confounders Variables discovered during a
study that the researcher cannot control for.
construct The conceptual elements of an
idea or mental model.

contextual factors Items in the environment
that can influence the results of a study.
dependent variable The condition that
changes from the presumed effect of the
independent variable.
division of labor Task specializa-
tion; highly specific job functions and
responsibilities.
experiential learning The application of
theory to a real or simulated situation.
Gantt chart (Gantt) A project management
tool that graphically displays planned,
completed, and pending tasks.
generalizable Applicable in a broader
context and to other situations.
Hawthorne effect (Mayo) A phenomenon
in behavioral studies in which observation
alone affects human subjects’ behavior.
hierarchy An organizational structure
with clearly defined levels of authority and
reporting structure.
hierarchy of needs (Maslow) A theory of
motivation that ranks individual human
needs from basic survival to personal ful-
fillment; it postulates a progression from
one level to the next as needs are met.

hygiene factors (Herzberg) Lower level
employment needs involving basic condi-
tions of employment that produce dissatis-
faction if not met.
hypotheses Statements of expected results
or relationships.
independent variable The condition
that is controlled or manipulated by the
researcher and that predicts a presumed
effect, indicated by a change in the depen-
dent variable.
fra81455_01_c01_001-032.indd 31 4/23/14 10:00 AM
mass production Large-scale factory pro-
duction using machinery and assembly-
line processes.
measures Variables identified either as
numbers or categorical descriptive terms.
motivators (Herzberg) Higher level
employment needs such as recognition,
growth opportunities, and autonomy that
produce job satisfaction when met.
POSDCORB (Gulick) Essential manage-
ment functions of planning, organizing,
staffing, directing, coordinating, reporting,
and budgeting.

problem statement A concise descrip-
tion of an operational process that needs
improvement.
return on investment (ROI) Profits
received as a result of the purchase of
goods or labor.
satisficing (March & Simon) Accepting
the first feasible solution presented.
scientific management (Taylor) The
application of concepts and tools from the
natural and physical sciences to industrial
and corporate business administration.
self-actualization (Maslow) The high-
est level need, encompassing fulfillment
through accomplishment, intellectual and
personal growth, and autonomy.
shared governance Employee participa-
tion in organizational policy making.
theory An attempt to explain what one
observes or believes.
two-factor theory of motivation
(Herzberg) A theory of motivation that
states employees will be dissatisfied if
hygiene factors are not in place, but they
will be highly satisfied only if the higher
level motivators are present.
variables Empirical units used to describe

constructs in a theory.
fra81455_01_c01_001-032.indd 32 4/23/14 10:00 AM
2 Current Organization Theory
Learning Objectives
After reading this chapter, you should be able to:
• Identify the principal forces in the evolution of modern health
organizations.
• Apply the concepts of systems theory to health organizations.
• Articulate the contributions of structuralism to organization
theory.
• Describe the use of futures research on health organizations.
• Relate contingency theory to strategic management in health
organizations.
• Examine the use of resources and power in health
organizations.
Fuse/Thinkstock
CN
CT
CO_LO

CO_TX
CO_BL
CO_CRD
fra81455_02_c02_033-062.indd 33 4/23/14 9:17 AM
Section 2.1Introduction: The Evolution of Modern Health
Organizations
Midcentury Media Portrayals of Business Organizations
and Health Care Providers
Sloan Wilson’s best-selling 1955 novel,
The Man in the Gray Flannel Suit,
depicts a man struggling to find mean-
ing in a corporate world ruled by venal,
conformist executives. In 1956 William
H. Whyte, an editor at Fortune magazine,
wrote The Organization Man, a thought-
ful critique of the pernicious influence of
large corporations on American society.
Whyte considered all large organizations
dangerous because they elevated the role
of managers as opposed to leaders and dis-
couraged individual initiative and innova-
tion. Both books challenged the prevailing
view of the good life in America—a secure
white-collar job in a large corporation and
a single-family home in the suburbs.
Two hospital-based 1960s television pro-

grams illustrate the dramatic changes
in the health industry at that time. Dr.
Kildare and Ben Casey both portrayed idealistic young
physicians who practiced in large, high-
tech medical centers featuring the latest medical technology of
the era. Contrasting dramatic
themes for the lead characters reflected dichotomous views of
large, complex health care organiza-
tions: Dr. Kildare was a highly conscientious intern, attentive to
and concerned for the welfare
of his patients, who deferred to his more experienced superiors;
Dr. Ben Casey, meanwhile, was a
brash young neurosurgeon who constantly clashed with senior
clinicians and hospital administra-
tors and rebelled against hospital rules and protocols.
1. Health care has been a big business for some time, and the
health care industry sector is
projected to expand even more in the future. What are some of
the advantages and disad-
vantages of large health organizations for health care
professionals and managers?
2. What can health care professionals learn from the behavioral
types personified by Dr.
Kildare and Dr. Casey?
2.1 Introduction: The Evolution of
Modern Health Organizations
The post–World War II period was one of tremendous economic
growth as people returned
to civilian life and businesses returned to production.

Organizations grew larger and more
sophisticated; management was a recognized academic
discipline and business a respect-
able field of study. In the health care sector, the emphasis was
on:
Walter Sanders/Time & Life Pictures/Getty Images
Workers commute by train to work in the 1950s, an
era in which a secure white-collar job in a large cor-
poration and a single-family home in the suburbs
embodied the good life.
H1 KTSN ST
fra81455_02_c02_033-062.indd 34 4/23/14 9:17 AM
Section 2.1Introduction: The Evolution of Modern Health
Organizations
• Expanding the infrastructure: The Hill-Burton Act (the
Hospital Survey and Con-
struction Act of 1946) established federal grants and loans to
build hospitals in
underserved, primarily rural areas (Longest, 2010).
• Adapting to advances in medical science and technology
(many derived from
combat innovations): Following World War II, hospitals became
the locus of health
care technological innovation as clinical practice standards
became more rigorous
and the scope of scientific knowledge expanded exponentially.

• Increasing physician specialization: The percentage of
specialist physicians
increased from 23.5% of the total physician workforce in 1940
to 36.5% in 1950,
reinforced by government policies that accorded board-certified
physician special-
ists higher rank and pay and by provisions of the GI Bill
allowing veteran general
practitioners to pursue specialty training (Donini-Lenhoff &
Hedrick, 2000).
• Professionalization of nursing: Until the 1960s most nurses
received training
through 3-year hospital diploma programs, using an
apprenticeship model. Since
then 2-year community and vocational colleges have become the
most common
training sites for registered nurses (RNs). In addition, growing
numbers of uni-
versities offered bachelor of science in nursing (BSN) programs
in response to the
American Nurses Association’s 1965 position paper
recommending the BSN as the
entry-level degree for nursing positions (Scheckel, 2009).
• Growth of employer-sponsored health insurance: To keep
inflation in check, the
federal government instituted wage and price controls in the
postwar era, forcing
businesses unable to raise wages to compete for scarce labor by
offering benefits.
Concurrently, the labor union movement was expanding, and
health insurance was
first on workers’ list of demands. Organized labor’s success in
obtaining compre-
hensive health insurance coverage for union members created

tremendous pres-
sure on all businesses to offer similar benefits, and by the 1960s
it was an expected
benefit of employment for full-time workers in nearly all
business sectors.
However, not everyone enjoyed the benefits of the booming
postwar economy. The civil
rights movement of the 1960s focused public attention on
poverty and inequality, which
led the government to expand the role it played in health and
human services. The Medi-
care and Medicaid health insurance programs, established in
1965 as Titles 18 and 19 of the
Social Security Act Amendments, respectively, provided health
insurance coverage to two
of the most vulnerable segments of society: the elderly (and
some disabled) and the poor.
All of these forces contributed to the growth and complexity of
the U.S. health care sys-
tem and health organizations. Health care became a big
business, increasingly domi-
nated by large, for-profit corporations. In 1980 the editor of the
New England Journal of
Medicine warned:
The most important health-care development of the day is the
recent, rela-
tively unheralded rise of a huge new industry that supplies
health-care ser-
vices for profit. Proprietary hospitals and nursing homes,
diagnostic labora-
tories, home-care and emergency-room services, hemodialysis,
and a wide
variety of other services produced a gross income to this

industry last year
of about $35 billion to +40 billion. This new “medical-
industrial complex”
[emphasis added] may be more efficient than its nonprofit
competition, but it
creates the problems of overuse and fragmentation of services,
overemphasis
fra81455_02_c02_033-062.indd 35 4/23/14 9:17 AM
Section 2.2Modern Organization Theory: Big-Picture Thinking
on technology, and “cream-skimming,” and it may also exercise
undue influ-
ence on national health policy. In this medical market,
physicians must act as
discerning purchasing agents for their patients and therefore
should have no
conflicting financial interests. Closer attention from the public
and the profes-
sion, and careful study, are necessary to ensure that the
“medical-industrial
complex” puts the interest of the public before those of its
stockholders. (Rel-
man, 1980, p. 963)
2.2 Modern Organization Theory: Big-Picture Thinking
As organizations became recognized as an integral element of
modern society, organization
theorists began to study all societal institutions from an
organizational perspective. Midcen-
tury organization theorists incorporated new ideas from the
social and biological sciences
to develop their new conceptual models. Sociologists focused

on who controlled organiza-
tions and how, as well as the resulting effects on various
segments of society. Management
scholars, in contrast, were concerned with understanding how
organizations functioned in
order to make them more effective and efficient (Hinings &
Greenwood, 2002). It was an
exciting time for scholars in different fields to learn from and
with each other.
Systems Theory
One such scholar was German biologist Ludwig von
Bertalanffy, who proposed a general
systems theory to describe physical, mechanical, biological, and
social systems with inter-
related components. Concerned with what he saw as the growing
isolationism of scien-
tists from different fields, von Bertalanffy sought to develop an
interdisciplinary approach
to science by proposing that the common focus of scientists,
regardless of their disciplines,
was systems. When his ideas were translated and published in
the broader Western sci-
entific community, they became the foundation for the systems
approach to organization
theory (Diana & Olden, 2009).
University of Michigan economist Kenneth Boulding applied
the concepts of general systems
theory to human behavior by developing a nine-level
hierarchical systems typology based
on complexity. More complex systems had the capacity to grow,
change, and adapt through
self-maintenance and renewal. Organizations, as social systems,
are at the eighth level in

Boulding’s classification scheme. The unit in organizational
systems is the role, rather than
the individual occupying it, with roles connected by channels of
communication. Boulding
urged attention to the fit between the role and the person, and
he observed how the person-
alities of the role’s previous occupants influence how the role is
perceived (Boulding, 1956).
Mechanistic and Organic Systems
Tom Burns and G. M. Stalker developed their theory of
mechanistic and organic systems
after studying technology changes in UK industries in the 1940s
and 1950s. Although
fra81455_02_c02_033-062.indd 36 4/23/14 9:17 AM
either organizational form may be appropriate in particular
situations, mechanistic orga-
nizations are generally more suited to a stable environment,
whereas dynamic conditions
require an organic form (Burns & Stalker, 1961). In the health
care industry, mechanis-
tic organizations such as hospitals typically operated in a more
stable environment than
organic ones such as medical device firms. Table 2.1 displays
the principal characteristics
of each type of organization and its relationship to the
environment.
Table 2.1: Characteristics of mechanistic and organic
organizations

Organizational characteristic Mechanistic organization Organic
organization
Environmental conditions Stable Dynamic
Structure Hierarchical Flexible
Communication patterns Vertical, formal Multidirectional,
informal
Organizational climate Predictable, secure Innovative, uncertain
Source: Burns, T., & Stalker, G. M. (1961). The management of
innovation. Oxford: Oxford University Press.
Open Systems
Organizational psychologists Daniel Katz and Robert Kahn
(1966) proposed the concept
of organizations as open systems that both influence and are
influenced by their environ-
ments, both physical and social. As open systems, health
organizations such as hospitals
import people, materials, and values (inputs) and export
products and values (outputs).
As they grow and mature, they develop various subsystems for
production, support,
maintenance, adaptation or change, and management. All
members of the organization
are involved in several subsystems designed to foster individual
contributions to achiev-
ing the organizational purpose.
Learning Organizations
Peter Senge, an engineer by training, presented a view of
learning organizations as

dynamic systems that are in a state of continuous adaptation and
improvement. To reach
this ideal state, organizations must be designed to achieve their
goals and able to change
direction when they fall short. For example, a group of
executive teams from a regional
hospital system developed a vision of a learning hospital by
envisioning the opposite of
such a hospital—a “teaching” hospital, typically the most
prestigious type of hospital
in any community. Through a series of brainstorming sessions
comparing learning and
teaching hospitals, the teams developed a plan to transition
from being a teaching hospi-
tal to a learning hospital (Senge, Roberts, Ross, Smith, &
Kleiner, 1994).
fra81455_02_c02_033-062.indd 37 4/23/14 9:17 AM
Dr. Donald Berwick, a national expert on health care quality
whom President Barack
Obama attempted to appoint as the director of the Centers for
Medicare & Medicaid
Services (CMS), recommended the following precepts for
hospitals to become learning
organizations:
1. Ensure that the organization’s formal leadership understands
the concept and
actively supports the initiative.
2. Enable all staff to participate in improving the whole

organization.
3. Encourage and follow curiosity.
4. Link the hospital to its community through collaborative
partnerships with local
groups (Berwick, 1994).
The principal contribution of systems theory to organization
theory was recognizing the
importance of the relationship between the organization and its
environment, and that
organizations, like all systems, must adapt to environmental
changes. Health organiza-
tion professionals must therefore understand, monitor, and
interact with other systems in
the environment.
Structuralism
A fundamental issue in the study of organizations is their
structure: What do they look like?
What are their components, and how do these interact?
Structuralism, also referred to as
structuralist theory, developed from research addressing such
questions as: How does orga-
nizational structure relate to organizational performance—for
example, what advantages
do multihospital systems have over unaffiliated community
facilities, and vice versa? What
environmental factors determine or influence organizational
structure—for example, could
a religious health system form a publicly owned corporation?
Structural Types
Henry Mintzberg (1979a, 1979b) of McGill University in
Canada examined both the inter-

nal and external structures of organizations, developing a
typology of organizations by
structure. He proposed that all organizations follow a similar
basic pattern, displayed in
Figure 2.1. At the center is a hierarchical core, with the
governing body and executives at
the top level or strategic apex, managers in the middle, and the
operating core personnel
at the bottom. The technostructure and support staff are at the
sides of this core. This is a
typical organizational structure for large health care
organizations such as hospitals and
health plans.
fra81455_02_c02_033-062.indd 38 4/23/14 9:17 AM
Figure 2.1: Mintzberg: The five basic parts of the organization
According to Henry Mintzberg, an organization has five basic
parts. Within each one are workers with
different types of responsibilities and functions.
Source: Mintzberg, Henry, Structuring Of Organizations, 1st ©
1979. Printed and Electronically Reproduced by permission of
Pearson
Education, Inc., Upper Saddle River, New Jersey.
Within each of the basic organizational elements are workers
with different types of
responsibilities and functions. Table 2.2 defines the
fundamental responsibilities of
people in each element and provides examples of health

organization personnel in
each element.
Strategic Apex
Operating Core
Middle Line
Support Staff
Technostructure
Legal Counsel
Public Relations
Industrial Relations
Research &
Development
Payroll
Pricing
Reception
Mailroom
Cafeteria
Controller
Strategic Planning
Personnel Training

Operations Research
Production Scheduling
Technocratic
Clerical Staff
Work Study
fra81455_02_c02_033-062.indd 39 4/23/14 9:17 AM
Table 2.2: Mintzberg’s organizational elements and
representative health
organization personnel
Element Definition Health organization
personnel
Operating core Employees who perform
the basic work related to the
production of products and
services
• Hospital nurses and
other clinicians
• Health plan sales,
claims, and customer
relations staff
Strategic apex Governing body and execu-
tives who ensure that the

organization fulfills its mis-
sion effectively
• Board of directors/
trustees
• Chief executive
officer and other C-level
executives
Middle line Managers with delegated
authority who link the strate-
gic apex to the operating core
• Directors, managers,
supervisors
Technostructure Analysts who serve the
organization by affecting
the work of others through
research, planning, data col-
lection, and analysis
• Health plan actuaries
• Quality management
Support staff People who provide indirect
services for the organization
• Information systems
• Human resources
• Facility management
Source: Mintzberg, Henry, Structuring Of Organizations, 1st ©
1979. Printed and Electronically Reproduced by permission of
Pearson

Education, Inc., Upper Saddle River, New Jersey.
There are five generic organization structures that can be
described according to Mintz-
berg’s five-part elements theory (Managing Change Toolkit,
n.d.):
1. Simple structure: Also known as the entrepreneurial
organization, the simple
structure is a hierarchy with vertical lines of authority, with
minimal technostruc-
ture and support staff. Its key characteristics are direct
supervision of subordi-
nates, organization according to functions, and a lack of formal
support struc-
tures. Most organizations begin as simple structures with just a
strategic apex
and an operating core. Authority tends to be concentrated at the
strategic apex,
often solely in the CEO. Smaller organizations often remain
simple structures,
especially when the CEO wants to avoid formal restrictions.
Examples of health
organizations with a simple structure would be a small
physician practice, home
health agency, or elder care residential facility.
2. Machine bureaucracy: These types of organizations are
usually older and large
enough to have a high volume of work. Standardized operating
procedures make
organizational units function together like the parts of a
machine and allow employ-
ees to carry out their work with brief training. For this reason
the technostructure is
a key part of the structure. Lines of authority are formal and

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