Structuring Organizations

for Today’s Challenges

Chapter 08

Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

1. Outline the basic principles of organization management.

2. Compare the organizational theories of Fayol and Weber.

3. Evaluate the choices managers make in structuring organizations.

4. Contrast the various organizational models.

5. Identify the benefits of inter-firm cooperation and coordination.

6. Explain how organizational culture can help businesses adapt to change.

LEARNING GOALSChapter Eight

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Building an Organization from the Bottom Up

• Create a division of labor

• Set up teams or departments

• Allocate resources

• Assign tasks

• Establish procedures

• Adjust to new realities

STRUCTURING an ORGANIZATIONLG1

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The Changing Organization

• Often change in organizations is due to evolving business environments:- More global competition

- Declining economy

- Faster technological change

- Pressure to protect the environment

• Customer expectations have also changed --Consumers today want high-quality products with fast, friendly service and all at low cost.

THE CHANGING ORGANIZATIONLG2

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The Development of Organization Design

• Mass production of goods led to complexities in organizing businesses.

PRODUCTION CHANGED ORGANZIATION DESIGN

• Economies of Scale -- Companies can reduce their production costs by purchasing raw materials in bulk.

• The average cost of goods decreases as production levels rise.

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• Organizations in which employees have no more than one boss; lines of authority are clear.

ORGANIZATIONS BASED on FAYOL’S PRINCIPLES

• Rigid organizations that often don’t respond to customers quickly.

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Fayol’s Principles of Organization

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Max Weber and Organizational Theory

• Employees just need to do what they’re told.

• In addition to Fayol’s principles, Weber emphasized:- Job descriptions- Written rules, decision

guidelines and detailed records- Consistent procedures,

regulations and policies- Staffing and promotion based

on qualifications

WEBER’S PRINCIPLESLG2

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Turning Principles into Organization Design

• When following Fayol and Weber, managers control workers.

• Hierarchy -- A system in which one person is at the top of an organization and there is a ranked or sequential ordering from the top down.

• Chain of Command -- The line of authority that moves from the top of the hierarchy to the lowest level.

HIERARCHIES and COMMANDLG2

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• Bureaucracy -- An organization with many layers of managers who set rules and regulations and oversee all decisions.

• It can take weeks or months to have information passed down to lower-level employees.

• Bureaucracies can annoy customers.

BUREAUCRATIC ORGANIZATIONSLG2

Turning Principles into Organization Design

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Choosing Centralized or Decentralized Authority

• Centralized Authority -- When decision-making is concentrated at the top level of management.

CENTRALIZATION or DECENTRALIZATION?

• Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters is.

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Choosing the Appropriate Span of Control

• Span of Control -- The optimal number of subordinates a manager supervises or should supervise.

• When work is standardized, broad spans of control are possible.

• Appropriate span narrows at higher levels of the organization.

• The trend today is to reduce middle managers and hire better low-level employees.

SPAN of CONTROLLG3

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Choosing Tall versus Flat Organization Structures

• Structures determine the way the company responds to employee and customer needs.

• Tall Organization Structures -- An organizational structure in which the organization chart would be tall because of the various levels of management.

• Flat Organization Structures -- An organizational structure that has few layers of management and a broad span of control.

ORGANIZATIONAL STRUCTURESLG3

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Weighing the Advantages and Disadvantages of Departmentalization

• Departmentalization -- Divides organizations into separate units.

• Workers are grouped by skills and expertise to specialize their skills.

• Has advantages and disadvantages

• Various ways to departmentalize

DEPARTMENTALIZATIONLG3

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Organization Models

1. Line Organizations

2. Line-and-Staff Organizations

3. Matrix-Style Organizations

4. Cross-Functional Self-Managed Teams

FOUR WAYS to STRUCTURE an ORGANIZATIONLG4

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Line Organizations

• Line Organization -- Has direct two-way lines of responsibility, authority and communication running from the top to the bottom. Everyone reports to one supervisor.

• There are no specialists, legal, accounting, human resources or information technology departments.

• Line managers issue orders, enforce discipline and adjust the organization to changes.

LINE ORGANIZATIONSLG4

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Line-and-Staff Organizations

• Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees.

• Line personnel have authority to make policy decisions.

• Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees.

PERSONNELLG4

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Matrix-Style Organizations

• Matrix Organization -- Specialists from different parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure.

MATRIX ORGANIZATIONS

• Emphasis is on product development, creativity, special projects, communication and teamwork.

• Advantages and disadvantages

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Cross-Functional Self-Managed Teams

• Cross-Functional Self-Managed Teams -- Groups of employees from different departments who work together on a long-term basis.

• A way to fix the problem of matrix-style teams is to establish long-term teams.

• Empower teams to work closely with suppliers, customers and others to figure out how to create better products.

CROSS-FUNCTIONAL SELF-MANAGED TEAMSLG4

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Going Beyond Organizational Boundaries

• Cross-functional teams work best when the voice of the customer is heard.

• Teams that include customers, suppliers and distributors go beyond organizational boundaries.

• Government coordinators may assist in sharing market information beyond national boundaries.

GOING BEYOND ORGANIZATIONAL BOUNDARIES

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Source: CIO Magazine, www.cio.com.

• Clear purpose

• Clear goals

• Correct skills

• Mutual accountability

• Shift roles when appropriate

BUILDING SUCCESSFUL TEAMSImportant Conditions for Small TeamsLG4

Going Beyond Organizational Boundaries

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Transparency and Virtual Organizations

• Networking -- Using communications technology to link organizations and allow them to work together.

• Most companies are no longer self-sufficient; they’re part of a global business network.

REAL-TIME BUSINESSLG5

Photo Courtesy of: Marc Wathieu

• Real Time -- The present moment or actual time in which something takes place.

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• Transparency -- When a company is so open to other companies that electronic information is shared as if the companies were one.

• Virtual Corporation -- A temporary networked organization made up of replaceable firms that join and leave as needed.

TRANSPARENCY and VIRTUAL CORPORATIONSLG5

Transparency and Virtual Organizations

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Benchmarking and Core Competencies

• Benchmarking -- Compares an organization’s practices, processes and products against the world’s best.

• Core Competencies -- The functions an organization can do as well as or better than any other organization in the world.

• Benefits: Cost Savings; Optimizes human resources needs

• Concerns: Lower employee moral; liability; security and confidentiality

BENCHMARKING and CORE COMPETENCIESLG5

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Adapting to Change

• Change isn’t easy. Employees like to do things the way they always have.

• Get rid of old, inefficient facilities and equipment.

• Use the Internet to get to know your customers and sell directly to them.

ADAPTING to MARKET CHANGES

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• People will become so used to having social media at their fingertips, it’ll no longer be news.

• There will be new gadgets; some will be improvements, others will be revolutionary.

• This can lead to more people working from home and more companies interacting directly with their customer base.

WHEN TWITTER and FACEBOOK are OLD SCHOOL

(Social Media in Business)

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Restructuring for Empowerment

• Restructuring -- Redesigning an organization so it can more effectively and efficiently serve its customers.

• Inverted Organization -- An organization that has contact people at the top and the CEO at the bottom of the organizational chart.

• The manager’s job is to assist and support frontline workers, not boss them.

RESTRUCTURINGLG5

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Creating a Change-Oriented Organizational Culture

• Organizational or Corporate Culture -- The widely shared values within an organization that foster unity and cooperation to achieve common goals.

• Some of the best organizational cultures emphasize service.

• Culture is shown in stories, traditions and myths.

ORGANIZATIONAL CULTURELG6

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Managing the Informal Organization

• Formal Organization -- Details lines of responsibility, authority and position.

• The formal system is often slow and bureaucratic, but it helps guide the lines of authority.

• No organization can be effective without formal and informal organization.

FORMAL ORGANIZATIONLG6

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• Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships.

INFORMAL ORGANIZATION

• Informal organization helps foster camaraderie and teamwork among employees.

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Managing the Informal Organization

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• The informal system is too unstructured and emotional on its own.

• Informal organization may also be powerful in resisting management directives.

LIMITATIONS of INFORMAL ORGANIZATIONSLG6

Managing the Informal Organization

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