Organizational behavior for second year management students

CHAPTER ONE
AN OVERVIEW OF ORGANIZATIONAL BEHAVIOR

1.1. What is Organizational Behavior?

Definitions

“Organizational behavior is a field of study that investigates the impact that individuals, groups and
organizational structure have on behavior within the organization, for the purpose of applying such
knowledge towards improving an organizational effectiveness”.

The above definition has three main elements; first organizational behavior is an investigative study of
individuals and groups, second, the impact of organizational structure on human behavior and the third,
the application of knowledge to achieve organizational effectiveness. These factors are interactive in
nature and the impact of such behavior is applied to various systems so that the goals are achieved. The
nature of study of organizational behavior is investigative to establish cause and effects relationship.

An organization is a collection of people who work together to achieve a wide variety of goals, both
goals of the various individuals in the organization and goals of the organization as a whole.
Organizations exist to provide goods and services that people want. These goods and services are the
products of the behaviors of workers.

Organizational behavior is the study of the many factors that have an impact on how individuals and
groups respond to and act in organizations and how organizations manage their environments.

Although many people assume that understanding human behavior in organizations is intuitive, many
commonly held beliefs about behavior in organizations, such as the idea that a “happy worker is a
productive worker,” are either entirely false or true only in specific situations. The study of
organizational behavior provides a set of tools—concepts and theories—that help people understand,
analyze, and describe what goes on in organizations and why. How do the characteristics of
individuals, groups, work situations, and the organization itself affect how members feel about their
organization?

1.2. The three basic units of analysis in Organization Behavior

The study of organization behavior includes everything about organizations. As this is a rather large
undertaking, it is helpful to breakdown the field of study in to more manageable units for investigation,

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and in this regard this material will use three different, but interrelated, levels of analysis: 1) the
individual 2) group behavior and 3) organization structure and job design.

I. The Individual
At one level, we can view organizations as consisting of individuals working on tasks in the pursuit of
personal and organizational goals. As a result, in order to understand organizations, it is necessary to
understand people, particularly from the perspective of individual organizational member. Much of
what we know about individuals is drawn from the discipline of psychology, and it is format his field
that theories and explanations regarding why individuals behave and react as they do in response to
different organizational policies, practices, and procedures is obtained. Within this perspective,
theories of motivation and satisfaction are explored to assist in understanding the behavior and
performance of individual organizational members.

II. Group Behavior

A second level of analysis focus upon the interactions of people as they work in committees, teams,
groups, units, or departments. This perspective on organization behavior considers the functioning of
these various types of groups, asking questions such as: How do people work together in groups? What
factors determine whether a group will be cohesive and productive, as opposed to fragmented and
unproductive? How does leadership influence group members and their ability to work together co-
operatively and productively? This level of analysis draws in particular on theories from social
psychology.

III. Organizational Structure and Job Design

The 3rd level of analysis has to do with the way organizations are formally structured and with the way
in which jobs are designed. Concern at this level of analysis is with the relationship between
organization & its environment, and emphasis is placed upon understanding how organization structure
& job design influence effectiveness (for example, how different ways of assigning duties and
responsibilities to departments may influence the ability of these departments and the whole
organization to do their work effectively). Additionally, an understanding of organizational design
must characterize and influence organizational behavior.

Why Do We Study OB?

Following are the reasons to study organizational behavior:

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To learn about yourself and how to deal with others

You are part of an organization now, and will continue to be a part of various organizations
Organizations are increasingly expecting individuals to be able to work in teams, at least some of the
time
Some of you may want to be managers or entrepreneurs

1.3. REPLACING INTUITION WITH SYSTEMATIC STUDY

Consciously or unconsciously we are all students of behavior. We observe others and attempt to
interpret what we see. We "read" people all the time and even attempt to predict what they might do
under different sets of conditions. We develop some generalizations in explaining and predicting what
people do and will do. These generalizations come as a result of observing, sensing, asking, listening,
and reading, or else secondhand through the experience of others.

While some of our appraisals may prove highly effective in explaining and predicting the behavior of
others, we all carry with us a number of beliefs that frequently fail to explain why people do what they
do. This occurs because many of the views we hold concerning human behavior are based on intuition
rather than fact. There is a better way; a systematic approach to the study of behavior can improve your
explanatory and predictive abilities and will uncover important facts and relationships, and provide a
base from which more accurate predictions of behavior can be made. Most behavior does not occur
randomly; it generally has a cause caused and direction based upon some end that the individual
believes, rightly or wrongly, is in his or her best interest. Because of differences between individuals
even in similar situations, people do not all act alike.

There are certain fundamental consistencies underlying the behavior of all individuals that can be
identified and used to alter conclusions based on individual differences. The consistencies allow
predictability. Systematic study means looking at relationships, attempting to attribute causes and
effects, and basing our conclusions on scientific evidence; that is, on data gathered under controlled
conditions and measured and interpreted in a reasonably rigorous manner. Systematic study replaces
intuition or those "gut feelings" you often hear experienced managers talk about.

What do your gut and your mind tell you about these questions?

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 Are happy workers always productive workers?

 Are individuals always more productive when their boss is a real "people person?"
 Does everyone want a challenging job?
1.4. A REVIEW OF A MANAGER’S JOB AND ITS RELATION TO THE
STUDY OF OB

Managers need to develop their interpersonal or people skill if they are going to be effective in their
jobs. Organizational behavior focuses on how to improve productivity, reduce absenteeism turn over
and increase employee job satisfaction. To develop valid generalization about the behavior of people,
OB uses systematic study to improve behavior predictions that would be made from intuition alone.
Since people are different, we have to look at OB in a contingency framework using situational
variables to moderate cause effect relationships. OB offers a number of challenges and opportunities
for managers.

OB recognizes differences and helps managers see the value of work force diversity and practice that
may need to be made when managing in different countries. It can also help managers learn to cope in
a world of temporariness and declining employee loyalty in terms of rapid and ongoing changes.

Organizational Behavior and Managerial process

The functions of management are important for business survival and success whether you lead a small
business or a major corporation. Management is creative problem solving. This creative problem
solving is accomplished through four functions of management: planning, organizing, leading and
controlling. The intended result is the use of an organization’s resources in a way that accomplishes its
mission and objectives.

Planning is the ongoing process of developing the business’ mission and objectives and determining
how they will be accomplished. Planning includes both the broadest view of the organization, e.g., its
mission, and the narrowest, e.g., a tactic for accomplishing a specific goal.

Organizing is establishing the internal organizational structure of the organization. The focus is on
division, coordination, control of tasks and the flow of information within the organization. It is in this
function that managers distribute authority to job holders.

Staffing is filling and keeping filled with qualified people all positions in the business. Recruiting,
hiring, training, evaluating and compensating are the specific activities included in the function. In the

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family business, staffing includes all paid and unpaid positions held by family members including the
owner/operators.

Leading is the process of getting the organization’s members to work together toward the
organization’s goals

Controlling is a four-step process of establishing performance standards based on the firm’s

objectives, measuring and reporting actual performance, comparing the two, and taking corrective or
preventive action as necessary in an organization.

Each of these functions involves creative problem solving. Creative problem solving is broader than
problem finding, choice-making or decision-making. It extends from analysis of the environment
within which the business is functioning to evaluation of the outcomes from the alternative which are
implemented. Management combines many different skills and abilities and requires dedication,
compassion, and the willingness to work with others in order to be successful.

Organizational Behavior and Managerial Roles

A manager is the organizational member who integrates and coordinates the work of others. A
manager can be directly responsible for the work of one person, for a group of people in a department
or office, or a team composed of people from several departments, or even for a team composed of
people from different organizations.

A role is a set of organized behaviors. Managers must assume multiple roles to meet the demands of
the functions mentioned earlier in this chapter. Roles common to all managers can be divided into
three groups, interpersonal, informational, and decisional:

 Interpersonal— figurehead, liaison, leader.

 Informational— monitor, disseminator, spokesperson.
 Decisional— entrepreneur, disturbance handler, resource allocator, negotiator.

1. Interpersonal Roles: all managers are required to perform duties that are ceremonial and symbolic
in nature.

A. Manager as Figurehead
Manager as symbolic head; obliged to perform a number of routine duties of a legal or social
nature.
• It symbolizes the organization and what it is trying to achieve.

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B. Manager as Leader
 Responsible for motivation and activation of subordinates in organization.

 Responsible for hiring, staffing, training and associated duties in the organization.
 Focal point for the organization of group.
 Effect integration between individual needs and organizational goals.

It involves to train, counsel, and monitor and encourage high employee

performance. .
Manager as Liaison
• Maintains self-developed network of outside contacts and informers who provide favors and
information.

• Develops horizontal relationships.

• By virtue of authority is able to establish special kind of external linkage system.

• Link and coordinates people inside and outside the organization to help achieve goals.

2. Information Roles: all managers receive and distribute information in an organization.

A. Manager as Monitor
 Seeks and receives information to develop through understanding of organization and environment.

 Internal Operations

 External Events
 Analyses
 Ideas and Trends
 Pressures
 Processing information and transferring it.
 It analyzes information from both the internal and external environment.

B. Manager as Disseminator
• Transmits information received from environment to members of organization.
• Processes information that is sometimes factual, sometimes needing interpretation and integration
of diverse influences.
• Distributes information from official and unofficial channels, manager transmits information to
influence attitudes and behavior of employees.

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C. Manager as Spokesperson
• Directs some of work-related persons outside own work unit.
• Transmits information outside of organization.
• Calls upon to speak on behalf of organization.
• May lobby for organization.
• Uses information positively to influence the way people in and out of the organization respond to it.

3. Decisional Roles: all managers are required to make decisions.

Manager as Entrepreneur
• Searches organization and its environment for opportunities and initiates “improvement projects” to
bring about change
• Supervises design of certain projects in terms of:
o Delegation
o Authorization
o Supervision
• Ensures viability and improves reputation of organization
• Decides upon new projects or programs to initiate and invest.

Manager as Disturbance Handler

• Responds involuntarily to high pressure disturbances that threaten to disrupt proper functioning of
the organization
o Conflicts between subordinates
o Exposure difficulties between one organization and another
o Resource losses or threats
• Responsible for correct action when organization faces unexpected disturbances
• It assumes responsibility for handling an unexpected event or crisis.

Manager as Resource Allocator

• Responsible for allocation of organizational resources like people, information, money, equipment,
space
• Determines how much of units’ financial, personnel and resources will be allotted in terms of
o Scheduling of Time
o Programming Work
o Authorizing Actions
• Involves complex choice-making behavior
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• It assign resources between functions and divisions, sets budgets for lower managers.

Manager as Negotiator
• Confers with individuals and groups inside or outside the unit for facilitating agreement on complex
or controversial issues.

Organizational Behavior and Managerial skills

Still another way of considering what managers do is to look at the skills or competencies they
need to successfully attain their goals. Three essential managerial skills are:

Technical skills:
• Technical skills refer to having sufficient knowledge in the technical aspects of your business to
be able to guide and assist staff and lead effectively.
• These skills could be in any number of areas, including computer capability, production
methods, research, etc.
Human Skills:
• The ability to work well with other people
• The ability to understand, alter, lead, and control people’s behavior.
• Human Relations means getting along well with the people associated with your business and
inspiring them to get along with each other.
Conceptual Skills:
• The ability to think and conceptualize about abstract and complex situations concerning the
organization.
• The ability to analyze and diagnose a situation and find the cause and effect.
• Conceptual skills refer to an ability to see the end product or the big picture.
1.5. THE CHARACTERISTICS OF OB

1. It is a way of thinking about individuals, groups and organizations.

2. It is multidisciplinary – it uses principles, models, theories and methods from other disciplines.

3. There is a distinctly humanistic orientation – people and their attitudes, perceptions, learning
capacities, feelings and goals are of major importance.

4. It is performance-orientated – it deals with the factors affecting performance and how it can be
improved.

5. The use of scientific method is important in studying variables and relationships.

6. It is applications-orientated in the sense of being concerned with providing useful answers to

questions which arise when managing organizations.

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1.6. HISTORICAL FOUNDATIONS OF ORGANIZATIONAL BEHAVIOR

As organizations increased in size and complexity, the need for human concern increased. Different
management theorists studied employees’ needs and motives or behavior in an organization and the
impact of employee behavior on productivity. Casual or common sense approaches to obtaining
knowledge about human behavior are inadequate. Underlying the systematic approach is the belief that
behavior is not random. It is caused and directed toward some end that the individual believes rightly
or wrongly, is in his best interest. Behavior generally is predictable if we know how the person
perceived the situation and what is important to him or her. While people’s behavior may not appear
rational to an outsider, there is reason to believe it usually is intended to be rational and it is seen as
rational by them. Certainly there are differences between individuals. Placed in similar situations all
people do not act alike. However, certain fundamental consistencies underlie the behavior of all
individuals that can be identified and then modified to reflect individual differences.

A. Scientific Management Theory (F.W.Taylor)

Taylor was considered as the father of the principles of scientific management. His primary concern
was to increase productivity through greater efficiency in production and increase in payment for
workers. The scientific management approach was concerned with:-

 developing a standard method of doing a job

 assigning workers to jobs depending on their abilities

 training workers on the work method

 eliminating interruptions and

 offering economic incentives

Taylor described how the scientific method could be used to define the “one best way” for a job to be
done.

B. Behavioral Management Theory

The proponents of behavioral school recognized employees as individuals with concrete human needs
as part of the work groups and as members of a large society. Employees are assets that can be
developed not nameless robots expected to follow orders blindly.

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Robbert Owen: a successful textile mill manager in Scotland considered as the father of modern
personnel management. He emphasized that management should show concern for employees.

Elton mayo and his Hawthorne experiment: without any question, the most important contribution
to the human relations movement within organizational behavior came out of the Hawthorne studies
undertaken at the western electric company. The study attempts to predict behavior by studying the
relationship between physical variables in the work environment such as illumination, rest periods,
length of work weeks, length of work periods, and employee productivity. The second relationship
studied the relationship between nonphysical variables such as improved human relations, supervisory
methods, social interaction, incentive systems, workers’ authority, and productivity.

Mayo attempted to show that man is an emotional animal, non-logical being who often reacts
unpredictably to the work environment and finally said social factors determine human behavior.

Abrham Maslow- a humanistic psychologist

He proposed a theoretical hierarchy of five needs; physiological, safety, social, esteem and self-
actualization needs. From a motivation standpoint, he argued that each step in the hierarchy must be
satisfied before the next can be activated and that once a need is substantially satisfied, it no longer
motivates behavior.

C. Contingency Management Theory

This theory is based on the premises that managers prefer actions or approaches depending on the
variables of the situation they face. It recognizes that there is “no one best way” to manage people in
organizations and no single set of simple principles that can be applied universally. A contingency
approach to the study of OB is intuitively logical because organizations obviously differ in size,
objectives, and environmental uncertainty. Similarly, employees differ in their values, attitudes, needs,
and experiences. Therefore, it would be surprising to find that there are universally applicable
principles that work in all situations, but it is one thing to say “it all depends.”

1.7. The development of organizational behavior

By most estimates organizational behavior emerged as a distinct field around 1940s (Warner 1994).
However, its origin can be traced much further back in time. The Greek philosopher Plato wrote about
equity in work relationships. Another Greek philosopher, Aristotle spoke about the elements of
persuasive communication.

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The writings of sixteenth-century Italian philosopher, Niccolo Machiavellilaid the foundation for
contemporary work on organizational power and politics. In 1976, Adam smith advocated a new form
of organizational structure based on division of labor. One hundred years later, the German sociologist
Max Webber, wrote about rational organizations and initiated discussion on charismatic leadership.
Soon after, Fredrick W.Taylor, introduced the systematic use of goal setting and reward or incentives
to motivate employees. Generally, four significant Eras; pre-scientific, classical, behavioral and
modern have paved the way for the field of organizational behavior.
1) The pre-scientific Era(pre1000-1880)
The practice of management can be traced to earliest history as abundant archaeological evidences,
such as the great pyramids, stands in silent tribute to the talent of bygone managers. Illiterate workers
(or slaves), miserable working conditions, primitive agrarian economies and crude tools made the tasks
of managers in ancient civilizations extremely difficult. Moreover, even though, managers during the
pre-scientific era did not have formal education and training in proven management methods, they
accomplished amazing things. As time passed, exploration of natural resources and technological
advances lead to the industrial revolution. The classical management era was born out of this interest.

2) The classical Era(1980-1930)

During this time, the first theory of management began to evolve. Two major thrusts were
administrative theory and scientific management.

Scientific management
According to time-honored definition, scientific management is the kind of management which
conducts a business or affairs by standards established by factors or truths gained through systematic
observation, experiment or reasoning.

Fredrick Taylor created with being the father of scientific management; published the principle of
scientific management. In 1911, trough time and task study, standardization of tools and procedures,
development of piece rate incentive schemes and systematic selection and training. Taylor dramatically
improved productivity. Taylor’s goal was to make work behavior as stable and predictable as possible
so that increased usage of sophisticated machines and factories would achieve maximum efficiency.
He relied heavily on monetary incentives because he saw workers as basically lazy beings, motivated
primarily by money.

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Administrative theory: Also called the universal process school of management. The origin of
administrative theory approaches can be traced to Hennery y Fayola the French industrialist. In his
1916 administration ‘Industrielle et Generalle’, Fayol divided the manager’s job in to five functions;
planning, organizing, command, coordination and control. He then recommended 14 universal
principles of management. Fayol viewed as potentially disruptive factor to be closely controlled by
management. Thus, these 14 principles emphasized on division of labor, authority, discipline, and
strictly enforced chain of command. They include.

Principles Description
Division of labor The more people specialize, the more efficiently they can perform the task.
Authority Managers have the right and the authority to give order and to get things done.
Discipline Members of an organization need to respect the rules & agreements that govern it.
Unity of command Each employee should receive instructions about particular operations from only
one person to avoid conflicting expectations and confusions.
Managers should coordinate the efforts of employees working in projects. But one
Unity of direction
manager should be responsible for one employee’s behavior.
Subordination Subordination of individual interest to the common goods.
Remuneration Pay for work done should be fair to both employee and employer.
Centralization Managers should retain final responsibility but should also give their subordinates
enough authority to their job properly.

Scalar chain A single, uninterrupted line of authority should run rank to rank from top
management to lowest position in the company.
Order
Materials and people should be at the right place at the right time.
Equity
Managers should be both free and friendly to their subordinates.
Stability and tenure
of staff High rate of employee turnover is not efficient.

Initiative Subordinates should be given the freedom to formulate and carry on with their
plans.
Esprit de corps Promoting team sprit gives the organization sense of unity.

3) The behavioral or Neo-classical Era (1930-1960)

A significant landmark in the evolution of managing and understanding the behavior of people in the
behavioral Era was the outcomes of the human relation movement during the 1930s.
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A unique combination of factors fostered the human relation movement during the 1930s. First,
following the legalization of union management collective bargaining in the United States in 1930s;
management began looking for a new ways of handling employees. Second, behavioral scientists
conducting on the job research, started calling for a more attention for the ‘human’ factors. Managers a
headed the call for better human relations and improved working conditions .One such study
conducted at western electric’s Hawthorne plant ,was a prime stimulus for the human relation
movement. Another essential to the human relation movement were the writings of Elton mayo and
Mary parker Follett. Australian born Mayo, who headed the Harvard researchers at Hawthorne,
advised managers to attend to the emotional needs of employees in his 1933 classic, the human
problem of industrial civilization. Follet was a true pioneer, not only as a female management
consultant in the male-dominated industrial world of the 1920s, but also a writer who saw employees
as a complex bundle of attitudes, beliefs and needs. Mary Follett told managers to motivate job
performance instead of merely demanding it, a "pull" rather than a "push" strategy.

The modern Era (1960 onwards)

The writing of Douglas McGregor, the total quality management movement, and the contingency
approach to management were the significant land marks in the evolution of managing and
understanding the behavior of people during the modern era.

In 1960s Douglas McGregor, wrote the book entitled; the human side of an enterprise, which has
become an important philosophical base for the modern view of people at work. He formulated two
sharply contrasting sets of assumptions about human nature. His theory x assumptions, were
pessimistic and negative and according to his interpretation they were typical of how managers
traditionally perceived employees. To help managers break with this negative tradition, he formulated
his theory of Y modern and positive set of assumption about people. McGregor believed that managers
could accomplish more through others by viewing them as self-energized, committed, responsible and
creative beings.

The underlying principles of total quality management are more important than ever given the growth
of both E-business on the internet and the overall service economy. Total quality means that the
organization’s culture is defined by and supports the constant attainment of customer satisfaction
through an integrated system of tools, techniques and training. This involves the continuous
improvement of organizational process, resulting in high quality products and services. Quality

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consultant, Richard J schonberger sums up TQM as ‘continuous, customer-centered, employee driven

improvement.

Principles of total quality management; Despite variations in the language and scope of total quality
programs, it is possible to identify three total quality principles:

Does it first time to eliminate costly reworks?

Listen to and learn from employees and customers.

Make a continuous improvement in an everyday matter.

1.8. Contributing Disciplines to Organizational Behavior

Psychology: Psychology is an applied science, which attempts to explain human behavior in a
particular situation and predicts actions of individuals. Psychologists have been able to modify
individual behavior largely with the help of various studies. It has contributed towards various theories
on learning, motivation, personality, training and development, theories on individual decision making,
leadership, job satisfaction, performance appraisal, attitude, ego state, job design, work stress and
conflict management. Studies of these theories can improve personal skills, bring change in attitude
and develop positive approach to organizational systems. Various psychological tests are conducted in
the organizations for selection of employees, measuring personality attributes and aptitude.

Sociology: Science of Sociology studies the impact of culture on group behavior and has contributed
to a large extent to the field of group-dynamics, roles that individual plays in the organization,
communication, norms, status, power, conflict management, formal organization theory, group
processes and group decision-making.

Political science: Political science has contributed to the field of Organizational behavior. Stability of
government at national level is one major factor for promotion of international business, financial
investments, expansion and employment. Various government rules and regulations play a very
decisive role in growth of the organization. All organizations have to abide by the rules of the
government of the day.

Social psychology: Working organizations are formal assembly of people who are assigned specific
jobs and play a vital role in formulating human behavior. It is a subject where concept of psychology
and sociology are blend to achieve better human behavior in organization. The field has contributed to

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manage change, group decision-making, communication and ability of people in the organization, to
maintain social norms.

Anthropology: It is a field of study relating to human activities in various cultural and environmental
frameworks. It understands difference in behavior based on value system of different cultures of
various countries. The study is more relevant to organizational behavior today due to globalization,
mergers and acquisitions of various industries. The advent of the 21st century has created a situation
wherein cross-cultural people will have to work in one particular industry. Managers will have to deal
with individuals and groups belonging to different ethnic cultures and exercise adequate control or
even channelize behavior in the desired direction by appropriately manipulating various cultural
factors. Environment studies conducted by the field of anthropology aims to understand organizational
human behavior so that acquisitions and mergers are smooth. Organizations are bound by its culture
that is formed by human beings.

Fig.1.1. the overview of the major contributions to the study of OB - Towards an OB discipline

Behavioral Science Contribution unit of analysis

output
o Training and Learning
o Motivation and Perception
o Leadership effectiveness
o Job satisfaction
o Individual decision making
o Performance Appraisal
Individual
Psychology o Attitude measurement
o Employee selection
o Work design and work stress
o Group dynamics; work teams
Organization as
o a system
Communication; power; conflict
Sociology o Intergroup behavior
Study of
o Formal organizational theory Group
o Organizational technology OB
o Organizational culture and change
Social o Behavioral and attitude change
psychology o Communication
o Group process, and decision making

Anthropology o Comparative values and attitudes

o Cross-cultural analysis Organizational
o Organizational culture and System
Political
environment
Science
o Conflict; power
o Intra organizational politics
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1.9. Organization as a system

It is very helpful to think of an organization as a system of interdependent parts that interact with
one another and that also must interact with the broader world within which the organization exists.

Within the organization we see that people employ technology in performing the tasks that they are
responsible for, while the structure of the organizations eves as a basis for coordinating all their
different activities. The systems view emphasizes the interdependence of each these elements within
the organization, as indicated by the arrows in figure below. Each element within the organization
depends upon all the other elements, if the organization as a whole is to function effectively.

The other key aspect of the systems view of organization is its emphasis on the interaction between the
organization and its broader environment. Organizations do not exist in a vacuum but instead are
influenced by the social, economic, political and cultural environments within which they operate. As
indicated in figure below, organizations are dependent up on their environments in two key ways.

Fig.1.2. Systems view of organizations

People

INPUTS Technology Tasks OUTPUTS

Structure

TRANSFORMATION PROCESSES

First, the organizations require inputs from the environment it is to operate. These inputs can
take the form of people, raw materials, money, ideas, and so on. If an organization cannot attract
the inputs it requires from the environment in order to function, it will rapidly decline and go out
of existence. The organization itself can be thought of as performing certain transformation
processes on its inputs in order to create outputs in the form of products or service.
This brings us to the second key way in which the organization is dependent upon its
environment. If people outside the organization do not want to buy the products or services

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provided by the organization (i.e. the outputs of the organization), it will very quickly go out of
existence.
The systems view of organizations emphasizes the key interdependences that organization must
manage within themselves organizations must trade off the interdependencies among people,
tasks, technology, and structure in order to perform their transformation processes effectively
and efficiently. Organizations must also recognize their interdependence with the broader
environments within which they exist. Failure to recognize and manage these key
interdependencies can leads to rapid decline and ultimately to the demise of the entire
organization.
1.10. Ethics and Organizational Behavior
Ethics are the principles and values an individual uses to govern his activities and decisions. In an
organization, a code of ethics is a set of principles that guide the organization in its programs, policies
and decisions for the business. The ethical philosophy an organization uses to conduct business can
affect the reputation, productivity and bottom line of the business.

Moral values such as respect, honesty, fairness, and responsibility are important constructs of ethics.
Application of such ethics is ensured by organizations by adopting some code of ethics. Thus, ethics
include the fundamental ground rules and organizations give an informed choice to the employees to
understand whether something is right or wrong and then take decisions making the right choice.

Ethics therefore, is the framework of values for moral behavior. It is a social glue to ensure that an
organized society prospers and everybody’s interest is served.

The role of ethics in organizational behavior underlies many of the keys to success and sustainability
by creating a set of rules and guidelines that promote safety, trust, and responsibility in the workplace.
By creating and enforcing workplace culture with a strong ethical code, an organization can reap the
benefits in several different ways.

Leadership Ethics

The ethics that leaders in an organization use to manage employees may have an effect on the morale
and loyalty of workers. The code of ethics leaders use determines discipline procedures and the
acceptable behavior for all workers in an organization. When leaders have high ethical standards, it
encourages workers in the organization to meet that same level. Ethical leadership also enhances the
company’s reputation in the financial market and community. A solid reputation for ethics and
integrity in the community may improve the company’s business.

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Employee Ethics

Ethical behavior among workers in an organization ensures that employees complete work with
honesty and integrity. Employees who use ethics to guide their behavior adhere to employee policies
and rules while striving to meet the goals of the organization. Ethical employees also meet standards
for quality in their work, which can enhance the company’s reputation for quality products and service.

Generally Leaders and employees adhering to a code of ethics create an ethical organizational culture.
The leaders of a business may create an ethical culture by exhibiting the type of behavior they'd like to
see in employees. The organization can reinforce ethical behavior by rewarding employees who exhibit
the values and integrity that coincides with the company code of ethics and disciplining those who
make the wrong choices.

For individuals, the role of ethics in organizational behavior helps ensure that each person is treated
fairly and maintains personal responsibility. Ensuring that each person earns a fair market wage based
on his effort, experience, and performance is one example of an ethical guideline that greatly affects
individuals. Similarly, by clearly outlining personal responsibility, such as not padding expenses or
abusing sick leave, ethical codes can help ensure that a high level of trust exists between co-workers.
In general, if an employee feels that he is treated fairly and can trust his co-workers and superiors,
loyalty, and thus productivity may rise.

The role of ethics in organizational behavior can also greatly impact how the organization acts as a
whole. Even if individuals follow a strong code of ethics, if the larger organization acts unethically, the
positive effect may be negated. For instance, even if all mid-level workers in an office act fairly and
morally toward one another, if managers are allowed to get away with sexual harassment, the entire
system can become a hostile, dangerous environment that can erode loyalty and cause more problems.

In addition to maintaining internal behavioral standards, part of the role of ethics in organizational
behavior is to ensure that the organization is behaving positively in the community at large. If a
company engages in behavior that damages the community, the consequence will often filter down into
the organization itself. One example of this might be a significant decrease in employee loyalty after a
newspaper article discloses that the business uses sweatshop (where pay is low and conditions are poor
or even illegal) labor to manufacture products. Assisting the community in a positive way can help
improve employee loyalty, attract better employees, and bring new business opportunities by
maintaining an ethical reputation.

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Organizational behavior for second year management students

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