Chapter 13

ORGANIZATION STRUCTURE

“Management Talk”

“Our company today is leaner, faster, more flexible and more efficient – in short much more

competitive. But our journey is far from finished. Building upon our recent success and momentum, we are determined to drive GM to

the next level – to sustained success.”

– Rick Wagoner, General Motors, Chairman and CEO

Objectives

• Read an organizational chart

• List the four types of organizational structures and explain the advantages and disadvantages of each type

• Name the factors that affect the type of structure an organization adopts

• Describe the roles of the chief executive officer and the board of directors

Understanding ManagementGeneral Motors has a long, proud history of being one of the biggest car manufacturers in the world. By the 1980s and 1990s, however, the company was losing profits to newer, more efficient manufacturers. Since then, the company has updated its factories and streamlined its operations in order to reduce costs.

Management Skills

• How would consolidating six divisions help General Motors improve serviced and cut costs? What are the possible drawbacks of merging the separate divisions?

• Have you ever been in a situation at home or work where there were too many people in charge of completing a task? What suggestions would you make to simplify the process?

Sec. 13.1: Understanding how organizational structures work

• Can you describe a graphic organizer you have used in school or the classroom?

• What are the benefits of using them?

• Why is it important for businesses to have organization charts?

What You’ll Learn

How to read an organizational chart The four main types of organizational

structures The difference between staff and line

functions The benefits of adopting a matrix or team

structure

Why is this important?

“Without an appropriate organizational structure, a business will not succeed”

What is an Organization Structure?

• A way to organize employees into some kind of structure to meet goals– Minimizes confusion– Coordinates activities by clearly identifying

which individuals are responsible for which tasks

Types of Organizational Structures?

1. Line Structure

2. Line and Staff Structure

3. Matrix Structure

4. Team Structure

Organizational Chart:

A visual representation of a business’s organizational structure

Line Structure

• Authority originates at the top and moves downward

• Common among small companies

• Line Functions – Functions that contribute directly to company

profits– Production managers, sales reps, and

marketing managers

CFO

Senior Managers

Mid-level Managers

Lower-level Managers

Non-management Employees

Line Structure

• Line Managers– Collect and analyze all

information needed to carry out their responsibilities

• Example:– Production Managers– Hire and fire all of the assembly-line

workers in their departments– Order all supplies for their department

CFO

Senior Managers

Mid-level Managers

Lower-level Managers

Non-management Employees

Line and Staff Structure• Mid-sized and large companies

• Other employees hired to help line managers perform activities they cannot

• Staff Functions – Advise and support line functions– Staff departments include: legal, human resources, and

public relations– Help line departments do their jobs– Authority is limited to making recommendations to line

managers

President

Vice President, Sales

Vice President, Marketing

AdvertisingSales

PersonnelFabrication Assembly

Matrix Structure• Allows employees from different departments to come

together temporarily to work on special project teams

• Provides flexibility to respond quickly to a customer need by creating a team of people who devote all of their time to a project then return to their departments or join a new project team

• I.E. – Boeing – assigns employees to project teams when it creates to design a new aircraft

Matrix StructureCorporate Level

Division A Division B

Production Engineering Production Engineering

Planners and analysts

Personnel Finance Personnel Finance

Planners andanalysts

Project Manager

Production Group Engineering Group Personnel Group Accounting Group

Team Structure• Brings together people with different skills in order to meet a

particular objective

• Belief is that the company will meet customer needs more effectively than traditional structures

• Senior managers need not approve decisions by lower-level managers

• Teams have the authority to make final decisions

• Employee preferred due to its focus on completing a project rather than a task

Flat vs. Tall Structures

• Flat structure: Small number of levels and broad span of management at each level

– Manager must be able to delegate well

– Advantages:

• Great Job Satisfaction

• More Delegation

• Increased communication between levels of management

• Tall Structure: Has many levels with small spans of management

– Power is centralized on the top levels and there is more employee control

– Advantages:

• Greater control

• Better Performance

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2

3

4

Span of Management 5:1 (Seven Levels)

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2

3

4

5

6

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Span of Management 8:1 (Four Levels)

Extension Activity!!!

• Design an organizational chart that illustrates the organizational structure of Fremd High School

• You can interview school staff for information• You can navigate the Fremd website to

understand departmental structures and how to structure your organizational chart (Line, Line and Staff, Matrix, and/or Team)

• Use Microsoft Word or Inspiration to build out your organization chart

What Makes an Organization Effective?

• Knowing Your Customers and Responding to Their Needs

• To succeed in the business world, companies must change to keep up with customer needs– What are some ways that Kodak has done

this? (established first simple camera in 1888)

13. 1: Chapter Summary

Companies use organizational charts to visually represent their organizational structures

Businesses generally adopt one of the following four organizational structures: line structure, line and staff structure, matrix structure, or team structure

Sec. 13.2: Creating an Organizational Chart

• List leadership roles or committee appointments that you have had

• What were the positive and negative experiences that you had in these roles

• How might a small company’s growth into a large corporation might change its management structure?

What You’ll Learn The different ways in which companies

organize their departments Why a company’s structure needs to change as

the company grows The role of the chief executive officer The role of the board of directors

Why is this Important?

“Managers both help create and work within organizational structures.”

Factors Affecting Organizational Structure

• Size of the business and kinds of products or services it produces

• Structures will differ between:– High-teach company employing 50,000 in eight

countries (Motorola, Inc.)– Small retail business with just a dozen employees

(Bob’s Hardware Store)

SIZE

“As a company grows, organizational structure must change with it”

• Organizational Life Cycle Stages– Stage 1: Growth through creativity– Stage 2: Growth through direction– Stage 3: Growth through delegation, coordination,

and collaboration

Stage 1: Growth through creativity

• Entrepreneurs create products or services for which there is a market

• Business is small in structure• Lack formal structures, policies, and

objectives• Founder is involved in every aspect of the

business and makes all the decisions• Current Importance

– An idea that appeals to consumers

Stage 2: Growth through direction

• Company grows in size• Company founder is no longer solely responsible for all

decision making• Professional managers hired to plan, organize, and staff• Managers create written policies, procedures, and plans• Rules and systems for hiring, firing, and rewarding

employees are implemented

• Set up:– Systems for employees to communicate– Financial controls/Budget constraints for departments– Formal Rules are on decision-making are formulated

Stage 3: Growth through delegation, coordination, and collaboration

• Problems occur which include:– Company’s structure can become too rigid and decision making

becomes too centralized– Lower-level employees feel left out of the decision-making process– Top executives find themselves too far removed from the customer to

make good decisions• To combat these problems, stage 3 is implemented which includes:

– Delegation of duties to lower-level employees in attempt to decentralize– Focuses on:

• Motivating people at lower levels• Allows senior executives to devote more of their time to long-term

management issues• Set up:

– Systems for employees to communicate– Financial controls/Budget constraints for departments– Formal Rules are on decision-making are formulated

The Changing Nature of a Company’s Organizational Structure

How have the needs of Apple Computer changed over time?

• Stage 1:– When a company is young, it depends

heavily on technical geniuses who had a brilliant idea for a user-friendly desktop computer.

– They turned this idea into a multimillion dollar company by introducing the Apple II computer in the 1970s

1976

The Changing Nature of a Company’s Organizational Structure

Stage 2:– As a company grows, it needs

managers with excellent managerial skills. To continue to grow, in the 1980s Apple Computer replaced its co-founder, Steven Jobs, with a professional manager. The new CEO, John Sculley, helped introduce the company’s Macintosh Computer

1984

The Changing Nature of a Company’s Organizational Structure

Stage 3:– Managers learn to delegate

authority. In 1996 company founder Steven Jobs returned to Apple as interim CEO in an effort to breathe new life into a company that had fallen on hard times. Apple’s organizational structure allowed it to introduce several important products in the 1990s, including the iMac and now in the 21st Century, the iPod and iPhone.

Type of Product or Service

“The number of levels within an organization increases as the level of technical complexity

increases with producing a product or service”

Organizing a Company into Departments

• Organizing Departments by Work Functions– Production

• Actual creation of company’s goods or services

– Marketing• Product development, pricing,

distribution, sales, and advertising

– Finance• Maintaining a company’s financial

statements and obtaining credit so a company can grow

– Human Resources• Hiring employees and placing them in

appropriate jobs

President

Vice President, Marketing

Vice President, Production

AdvertisingManager

Sales Manager

EngineeringManager

ManufacturingManager

Vice President, Finance

Market ResearchManager

Quality ControlManager

Accounting Manager

Credit Manager

Organizing a Company into Departments

• Each function includes various positions– Production

• Engineering, Manufacturing, Quality Control

– Marketing• Advertising, Sales, Market Research

– Finance• Accounting and Credit

• Advantages:– Allows for functional specialization

• Negative Effects:– Conflicts may develop between departments with different goals

• Production department not concerned about advertising

– Create managers whose scope is relatively narrow• Marketing manager may know a great deal about marketing, but lack

skills in other aspects of the business

Organizing a Company into DepartmentsOrganizing Departments by Product

– Single manager oversees all activities needed to produce and market a product

• Advantages: – Allows employees to identify with the product rather than with their particular job

function– Develops a sense of common purpose– Helps identify which products are profitable– Allows for training executive personnel by letting them experience a broad range of

functional activities

• Negative Effects:– Departments could become overly competitive, to the detriment of the company as a

whole– Activities are duplicated for each division [multiple marketing departments for each

different product]

President

Chemical Oil and Gas Automotive AerospaceIndustrial and

Technology

Organizing a Company into Departments

Organizing Departments in Other Ways– Geographical region

• North America v Asia

– Type of Customer

• Sales to:

– Governments

– For-profit businesses

– Nonprofit organizations

Understanding the Role of Company Leadership

Committees• An organized group of people appointed to

consider or decide upon certain matters– I.E. – homecoming dance, food drive, blood drive,

Grant-A-Wish, etc.– Guidelines that managers must set:

• Clearly define the committee’s function• Establish authority figures within a committee• Set Clear Goals for members to attain

Understanding the Role of Company Leadership

Chief Executive Officer (CEO)

The most important executive in a company (Top Executive)Together with other senior managers, the CEO:

1. Makes decisions about meeting the company’s objectives2. Sets the company’s objectives3. Determines who fills senior management positions4. Develops the company’s long-term strategies5. Attends the company’s annual stockholders’ meeting and answers

questions about the company’s activities6. Takes charge of the company in a crisis7. Works with the board of directors

Understanding the Role of Company Leadership

Board of Directors

In companies owned by stockholders, approves all major management decisions

Meet four to six times a yearThe legal representative of a company’s stockholders

Inside Board Members = Work for the companyOutside Board Members = Do not work for the company

• Examines all major decisions to ensure it is in best interest of company’s stockholders

• Makes it more difficult for corporate managers to act in ways that benefit them personally at the expense of the company’s owners

13. 2: Chapter Summary The type of structure a company adopts depends on

many factors including the company’s size and its products or services

Many companies are organized by work functions. Others are organized by product, region, or customer

An organization may form a committee to decide upon certain matters

Senior management, led by the company’s chief executive officer, initiates or approves all of a company’s major decisions

A board of directors approves all major decisions made by corporate management

Math Skills

• Lindholm Technologies, a high-tech company that specializes in computer graphics, has decided to reorganize its corporate structure into a team structure. By organizing into teams, Lindholm expects to be able to eliminate three mid-level managers, each earning $82,000 a year. It also expects to hire two additional entry-level employees, to be paid about $25,000 a year each. If the cost of the reorganization itself is $75,000, how much can the company expect to save after two years?

Assessing Computer Skills

• Choose a major U.S. company, such as IBM, Apple, Home Depot, Coca-Cola, General Mills, McDonald’s. Using the Internet, find out how the company you selected is organized and identify the top six managers. Also, if you can, obtain a copy of the company’s organizational chart.