Organizing the Business Enterprise

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Chapter 6

Sr.Chapter Chapter HeadingNo.No.

1. 3 Understanding the Global context of business (031012)2. 4 Conducting Business Ethically and Responsibly (250212)3. 6 Organizing the Business Enterprise (030312)4. 7 Understanding Entrepreneurship and Small Business

(0312)5. 8 Managing Human Resources6. 9 Understanding Employee Motivating, Satisfying and

Leadership7. 11 Understanding Marketing Processes and Consumer

Behavior8. 16 Managing Quality and Productivity9. 17 Managing Information Systems and Communication

Technology10. 19 Understanding Money and Banking11. 20 Intermediate Term and Lease Financing

Course Outline

3

Marks Distribution

50 Terminal Examination20 Mid Term Examination15 Quizzes15 Final Assignment

WHAT IS ORGANIZATIONAL STRUCTURE Determinants of Organization Chain of Command

THE BUILDING BLOCKS OF ORGANIZATIONAL STRUCTURE

Specialization Departmentalization

Customer Departmentalization Product Departmentalization Process Departmentalization Geographic departmentalization Functional Departmentalization

TOC

ESTABLISHING THE DECISION-MAKING HIERARCHY Assigning Tasks: Responsibility and Authority Performing Tasks: Delegation and Accountability

Fear of Delegating

Distributing Authority: Centralization and Decentralization Tall and Flat organizations Span of Control Three forms of authority

Line Authority Staff Authority Committee and Team Authority

BASIC FORMS OF ORGANIZATIONAL STRUCTURE Functional Organization Divisional Organization Matrix Organization International Organization

Organizational Design for 21st century Boundary-less organization The team organization The virtual organization The learning organization

TOC

7-6

Organizational Structure

The specification of the jobs to be done within a business and how those jobs are related to one another

Each organization must develop a structure that meets its specific needs

7

Definitions

Determinants of Organization Purpose, Mission & Strategy Size, technology and changes in

environment Organizational Chart:

Diagram depicting a company’s structure and showing employees where they fit into its operations

Chain of Command: Reporting relationships within a

company

THE BUILDING BLOCKS OF ORGANIZATIONAL STRUCTURE Job Specialization

The process of identifying the specific jobs that need to be done and designing the people who will perform them

Departmentalization The process to determine how jobs

should be grouped together in logical units to make the workplace more efficient

9

BASIS OF DEPARTMENTALIZATION

1. Customer: according to types of customers likely to buy a given product. E.g. women and men departments; wholesale and retail department.

2. Product: Departmentalization according to specific products being created. Example: When a computer store has a department for printers, for hardware, for software, etc. often used in manufacturers.

3. Process: Departmentalization according to production processes used to create a good or service. Sewing Department, Cutting department etc in a garment factory

4. Geographic: Departmentalization according to areas served by a business.

5. Functional: Departmentalization according to the function or activities of similar groups. Example: When a company has a different department for marketing, accounting, etc.

Customer Departmentalization

Industrial vs. Consumer

Youth vs. Adult Family vs.

Singles

President & CEOTravel Ways Inc.

Vice PresidentMarket

Seniors Travel

Managers

Staff

Vice PresidentMarket

Couples Travel

Managers

Staff

Vice PresidentMarket

Family Travel

Managers

Staff

7-11

Product Departmentalization

Consumer office supplies vs. business office supplies

Photocopiers vs. computers

Tax return preparation vs. company financial statements

President & CEO

Business Technology

Inc.

Vice PresidentDivision

Photocopier

Managers

Staff

Vice President

Division

Computer

Managers

Staff

Vice President

Equipment Division

Telecommunications

Managers

Staff

7-12

Process Departmentalization

Groups based on the manufacturing process

assembly painting drying inspection

President & CEOHi-Tech Systems Ltd.

Vice President

Division

Parts Fabrication

Managers

Staff

Vice PresidentDivision

Assembly

Managers

Staff

Vice PresidentPainting Division

Managers

Staff

7-13

Geographic Departmentalization

Western vs. Eastern region

Canadian vs. American

North America vs. Europe

President & CEO

College Publishers Ltd.

Vice President

Western Region

Managers

Staff

Vice President

Central Region

Managers

Staff

Vice President

Eastern Region

Managers

Staff

Functional Departmentalization

Based on activities performed

accounting & finance

marketing human resource production

President & CEO

Crystal Retailers Ltd.

Vice President

Finance

Accounting &

Managers

Staff

Vice President

Marketing

Managers

Staff

Vice President

Resources

Human

Managers

Staff

The Combination of Various Organizational Structures

16

ESTABLISHING THE DECISION-MAKING HIERARCHY

1. Assign tasks2. Perform tasks3. Distribute Authority

17

Assign Tasks

Responsibility:Duty to perform an assigned task

Authority:Power to make the decisions necessary to complete a task

18

Perform Tasks

Delegation:assignment of a task, responsibility, or authority by a manager to a subordinate

Accountability:Liability of subordinates for accomplishing tasks assigned by managers

Centralized organizations

Decentralized organizationsLower level managers hold significant decision-making

authority

Top managers hold most decision-making authority

Distributing Authority

20

Distributing AuthoritySpan of Control: The number of subordinates that a manager is responsible for supervising

Wide span- many subordinates- Flat OrganizationNarrow span- very few subordinates- Tall Organization

Flat organizations: Characteristic of decentralized companies with relatively few layers of management and relatively wide spans of control.

Tall organizations: Characteristic of centralized companies with multiple layers of management and relatively narrow spans of control.

Relatively narrow span of control

Relatively wide span of control

Organizational Structure and Span of Control

Forms of Authority

Line Authority Line Departments

Staff Authority Staff Members

Committee and Team Authority

Forms of Authority Several different forms of authority develop in most

organizations, regardless of the organizational structure. Line authority: When authority flows up and down the chain of

command. Classic example: the military. Line departments: Departments with a direct link to the

production and sales of a specific product. Examples include: manufacturing, assembly, sales, and distribution. Each line department is essential to an organization’s success. Line employees are the producers in the company.

Staff authority: When authority is based on expertise that usually involves advising line managers. Examples include: legal, accounting, human resources. They help line departments in making decisions. E.g. marketing department seeks attorney advice for signing new contract.

Staff members: Assist line departments in making decisions, but do not have the authority to make final decisions.

Team and committee authority: Authority granted to teams or committees that play central roles in the firm’s daily operations. This form of authority has recently emerged across a wide spectrum of companies.

Basic Forms ofOrganizational Structure

Divisional Organization

International Organization

Functional Organization

Matrix Organization

Basic Forms ofOrganizational Structure Functional organization: Structured around basic

business functions such as marketing, operations, and finance. Examples can be found in most small to medium businesses.

Divisional organization: Corporate divisions operate as autonomous businesses under the larger corporate umbrella. This structure relies on product departmentalization. Examples include General Electric, and The Walt Disney Company. The create product based divisions. Each may be managed as a separate enterprise.

Matrix organization: Teams are formed, and team members report to two or more managers. In some firms the matrix structure is temporary, while in other firms it is permanent. Examples include: Martha Stewart Living, Omnimedia, and many large consulting firms. It was created by NASA. It relies on committee and team authority.

International organization: Approach developed in response to the need to manufacture, purchase, and sell in global markets. Typically an international structure evolves as international operations escalate.

A Matrix OrganizationMARTHA STEWART

Media Group

Magazines Books Internet Radio/Newspaper

Network/Cable TV

Merchandising Group

Kmart line

Catalog line

Sears Paint

Specialty retailing

Area Specialists

Cooking

Entertainment

Weddings

Crafts

Gardening

Home

Holidays

Children

An International Organization

CEO

Retail Division A

Retail Division B

International Division

Latin America

Europe Asia

An International Organization

Many organizations initiate international expansion with a small team of specialists, evolve into a separate division as shown in the slide, and ultimately (if they experience success in foreign markets) integrate international operations into their standard business units.

The Future of Organizational Structure

Boundary-less Organizations

Team Organizations

Virtual Organizations

Learning Organizations

The Future of Organizational Structure Organizational structure continues to change as organizations

seek new ways to compete effectively within a rapidly changing business environment. Emerging forms include (these characteristics):

1. Boundary-less: Organizations in which traditional boundaries and structures are minimized or eliminated. Example: Wal-Mart has tied its key suppliers into its information system for seamless\faultless inventory management.

2. Team: Organizations that rely almost exclusively on project-type teams. Examples: Xerox and Apple are moving in this direction.

3. Virtual: Organizations that have little or no formal structure, relying heavily on temporary workers, leased facilities, and outsourced services. Examples: Global Research Consortium operates this way, and University of Phoenix is moving in this direction.

4. Learning: Organizations that strive to integrate continuous improvement with continuous employee learning and development. Example: Shell Oil Company.

5. Learning org. works to facilitate the lifelong learning and personal development to all employees and continuous respond to change.

Informal Groups The grapevine\

gossip Intrapreneuring

The Informal OrganizationA Powerful Dynamic

The Informal OrganizationA Powerful Dynamic

The informal organization is the network of everyday social interactions among employees, which do not follow formal lines of communication. The informal organization can be as powerful—if not more so—than the formal organization.

Informal groups: Groups of people who decide to interact among themselves. Their impact on the organization can be positive, negative, or neutral.

The grapevine\gossip: Informal communication network that runs through the organization. You need to have open channels of communication and responding vigorously in order to eliminate its level.

The Informal OrganizationA Powerful Dynamic

Intrapreneuring: Harnessing\tie together the energy of the informal organization to improve productivity by creating the innovation and flexibility of a small-business environment within the confines of a large organization. Compaq, Rubbermaid, 3M, and Xerox are examples of companies that support intrapreneuring.