Structuring Organizations

for Today’s Challenges

Chapter 08

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

1. Outline the basic principles of organizational management.

2. Compare the organizational/management theories of Fayol and Weber.

3. Evaluate the choices managers make in structuring organizations.

4. Contrast the various organizational/management 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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Profile

• Started as a summer intern and moved up through Xerox.

• The only female African-American CEO among Fortune’s Top 150 Companies.

• Serves on many boards and has been placed on councils by President Obama and Vice-President Biden.

URSULA BURNSXerox

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This sport’s equipment company studied the CD industry and learned to use ultraviolet inks to print graphics on skis. It went to the cable television industry to learn how to braid layers of fiberglass and carbon, and adapted that knowledge to make its products.

Name that company!

NAME that COMPANYChapter Eight

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Everyone’s Reorganizing

• Many companies are reorganizing, especially those in decline. Including:

- Auto makers - Homebuilders - Banks

• Adjusting to changing markets is normal in capitalist economies. - More global competition- Faster technological change- Pressure to protect the environment

• Companies must go back to basic organizational principles and firm up the foundation, and attending to service needs of customers.

REORGANIZATION is for EVERYONELG1

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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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You own a lawn-mowing business and are aware of the hazards in the job. But you’ve seen other companies save money by eliminating safety equipment. You’d also like to make more money.

SAFETY vs. PROFIT(Making Ethical Decisions)

• What do you do?

• Save money with less safety precautions?

• What are the consequences?

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The Development of Organization Design

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

PRODUCTION CHANGED ORGANZIATIONAL 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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Fayol’s Principles of Management

• Unity of command

• Hierarchy of authority

• Division of labor

• Subordination of individual interests to the general interest

• Authority

HENRI FAYOL’S - 14 PRINCIPLESof MANAGEMENT

• Degree of centralization

• Clear communication channels

• Order

• Equity

• Esprit de corps

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Video: http://www.youtube.com/watch?v=sJrlOfDi2rU

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 do not respond to customers quickly.

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Fayol’s Principles of Management

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Video: http://www.youtube.com/watch?v=fiKa9BHS5c0

Max Weber and Management Theory

• Employees just need to do what they are told, a Bureaucracy!

• In addition to Fayol’s principles, Weber emphasized:- Formal written rules, decision guidelines and

detailed records- Consistent procedures, regulations and

policies- Competence, not personality in job

appointment, and well defined job descriptions- Division of labor and work specialization- Staffing and promotion based on qualification

MAX WEBER’S PRINCIPLESLG2

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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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Turning Principles into Organization Design

• When following Fayol and Weber, managers control workers.

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

• 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.

HIERARCHIES and COMMANDLG2

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Progress Assessment

• What do the terms division of labor and job specialization mean?

• What are the principles of management outlined by Fayol?

• What did Weber add to the principles of Fayol?

PROGRESS ASSESSMENT

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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.

ORGANIZATIONAL STRUCTURES CHARTSLG3

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

ORGANIZATIONAL STRUCTURE CHARTSLG2

Organizational Structure

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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.

DEPARTMENTALIZATIONLG3

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1) Employees develop skills and progress within a department as they master skills.

2) The company can achieve economies of scale.

3) Employees can coordinate work within the function and top management can easily direct activities.

DEPARTMENTALIZATIONAdvantagesLG3

Weighing the Advantages and Disadvantages of Departmentalization

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1) Departments may not communicate well.

2) Employees may identify with their department’s goals rather than the organization’s.

3) The company’s response to external changes may be slow.

4) People may not be trained to take different managerial responsibilities, instead they become specialists.

5) Department members may engage in groupthink and may need outside input.

DEPARTMENTALIZATIONDisadvantagesLG3

Weighing the Advantages and Disadvantages of Departmentalization

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Looking at Alternate Ways to Departmentalize WAYS to DEPARTMENTALIZE

LG3

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WAYS to DEPARTMENTALIZELG3

Looking at Alternate Ways to Departmentalize

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Progress Assessment

• Why are organizations becoming flatter?

• What are some reasons for having a narrow span of control in an organization?

• What are the advantages and disadvantages of departmentalization?

• What are the various ways a firm can departmentalize?

PROGRESS ASSESSMENT

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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.

LINE PERSONNELLG4

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

STAFF PERSONNELLG4

Line-and-Staff Organizations

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SAMPLE LINE-and-STAFF ORGANIZATIONLG4

Line-and-Staff Organizations

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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.

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SAMPLE MATRIX ORGANIZATIONLG4

Matrix-Style Organizations

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• Managers have flexibility in assigning people to projects.

• Inter-organizational cooperation and teamwork is encouraged.

• Creative solutions to product development problems are produced.

• Efficient use of organizational resources.

MATRIX STYLEAdvantagesLG4

Matrix-Style Organizations

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• It’s costly and complex.

• Employees may be confused about where their loyalty belongs.

• Good interpersonal skills and cooperative employees are a must.

MATRIX STYLEDisadvantagesLG4

Matrix-Style Organizations

• It’s a temporary solution to a possible long-term problem.

• Teams are not permanent.

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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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Progress Assessment

• What’s the difference between line and staff personnel?

• What management principle does a matrix-style organization challenge?

• What’s the main difference between a matrix-style organization’s structure and the use of cross-functional teams?

PROGRESS ASSESSMENT

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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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A VIRTUAL CORPORATIONLG5

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.

• K2 Skis researched other companies’ practices in order to create the best possible skis and snowboards.

BENCHMARKING and CORE COMPETENCIESLG5

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KEEP in TOUCHAmazon and its Customer Database

Amazon uses information stored in databases to reach out to customers. The company emails customers letting them know about music, DVDs or books they might like based on past purchases.

• Have you ever received an email like this from Amazon or another company?

• What benefits would a database of personal information, like past purchases, provide Amazon?

• Do you think these databases are helpful for both companies and consumers or are they an invasion of privacy?

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Adapting to Change

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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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TRADITIONAL and INVERTED ORGANIZATIONSLG5

Restructuring for Empowerment

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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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• 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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Source: CIO Magazine.

• Do your job but don’t produce more than the rest of your group.

• Don’t tell off-color jokes or use profanity.

• Everyone is to be clean and organized at the workstation.

• Respect and help your fellow group members.

• Drinking is done off the job – NEVER at work.

GROUP NORMSExamples of Informal Group Norms

LG6

Managing the Informal Organization

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Progress Assessment

• What’s an inverted organization?

• Why do organizations outsource functions?

• What’s organizational culture?

PROGRESS ASSESSMENT

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