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112 Part One Organizations, Management, and the Networked Enterprise

FIGURE 3.2 THE TECHNICAL MICROECONOMIC DEFINITION OF THE
ORGANIZATION

In the microeconomic definition of organizations, capital and labor (the primary production factors
provided by the environment) are transformed by the firm through the production process into
products and services (outputs to the environment). The products and services are consumed by the
environment, which supplies additional capital and labor as inputs in the feedback loop.

As a manager, you will be the one to decide which systems will be built,
what they will do, and how they will be implemented. You may not be able to
anticipate all of the consequences of these decisions. Some of the changes that
occur in business firms because of new information technology (IT) invest-
ments cannot be foreseen and have results that may or may not meet your
expectations. Who would have imagined fifteen years ago, for instance, that
e-mail and instant messaging would become a dominant form of business
communication and that many managers would be inundated with more than
200 e-mail messages each day?

WHAT IS AN ORGANIZATION?

An organization is a stable, formal social structure that takes resources
from the environment and processes them to produce outputs. This techni-
cal definition focuses on three elements of an organization. Capital and labor
are primary production factors provided by the environment. The organization
(the firm) transforms these inputs into products and services in a production
function. The products and services are consumed by environments in return
for supply inputs (see Figure 3.2).
An organization is more stable than an informal group (such as a group of
friends that meets every Friday for lunch) in terms of longevity and routine-
ness. Organizations are formal legal entities with internal rules and proce-
dures that must abide by laws. Organizations are also social structures because
they are a collection of social elements, much as a machine has a structure—a
particular arrangement of valves, cams, shafts, and other parts.
This definition of organizations is powerful and simple, but it is not very
descriptive or even predictive of real-world organizations. A more realistic
behavioral definition of an organization is a collection of rights, privileges, obli-
gations, and responsibilities delicately balanced over a period of time through
conflict and conflict resolution (see Figure 3.3).
In this behavioral view of the firm, people who work in organizations develop
customary ways of working; they gain attachments to existing relationships;
and they make arrangements with subordinates and superiors about how work
will be done, the amount of work that will be done, and under what conditions

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