Part III: Management
Organizational Structure
Introduction to Business 3e
Jeff M a d ura
Copyright © 2004 South-Western. All rights reserved.
8
Learning Goals
•
Explain how an organizational structure
may be used by a firm to achieve its
strategic plan
•
Identify methods that can be used to
departmentalize tasks
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8–2
Organizational Structure
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8–3
Example of an Organization Chart
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Exhibit 8.1
8–4
Structure and the Strategic Plan
•
Organizational structure identifies
responsibilities for each job position and
the relationships among those positions.
– Organization chart
A
diagram that shows the interaction
among employee responsibilities.
– Chain of command
 Job
positions to which each type of
employee must report; indicates who is
responsible for various activities.
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8–5
Chain of Command
•
President (and/or) CEO
– Has ultimate responsibility for firm’s success.
– Attempts to coordinate all divisions and
provide direction for the firm’s business.
•
Vice-Presidents
– Normally oversee specific divisions or broad
functions and report to the president.
– Chain of command ensures that managers
make decisions to maximize the firm’s value,
rather than serve their own interests.
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8–6
Board of Directors
•
A set of executives responsible for
monitoring the activities of the firm’s
president and other high-level managers
– Directors are selected by share-holders to
serve as representatives for the
shareholders.
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8–7
Small Business Survey
Who Are Board Members of Small Firms?
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8–8
Board of Directors (cont’d)
Inside board members are also managers
of the firm.
• Outside board members are not
managers of the firm.
•
– Firms may partially compensate directors
with awards of stock to help motivate
directors to serve the interests of the firm’s
shareholders.
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8–9
Board of Directors (cont’d)
•
Boards usually focus on major issues and
not day-to-day activities of the firm
– Approves key business proposals, such as
mergers and acquisitions.
– Can initiate changes in a firm, such as
replacing the CEO or restructuring the firm’s
businesses.
– Conflicts of interest can prevent board
members from making decisions that are in
the best interest of shareholders.
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8–10
Other Elements of Structure
•
Internal auditor
– Responsible for ensuring that all
departments follow the firm’s
guidelines and procedures.
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8–11
Other Elements of Structure
•
Span of control
– The number of employees managed by each
manager.
– Narrow spans of control have fewer
employees reporting to each manager than
do wide spans of control.
•
Organizational height
– Tall organizations have many layers.
– Short (or flat) organizations have few layers.
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8–12
Distinguishing
between a Narrow
and Wide Span of
Control
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Exhibit 8.3
8–13
Other Elements of Structure
•
Centralization
– Most authority is held by high-level
managers.
– Middle and supervisory managers are not
allowed to make many decisions.
•
Decentralization
– Authority is spread among several divisions
or managers.
– Autonomous divisions can make their own
decisions and act independently.
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8–14
Decentralization
•
Advantages
– Reduces operating
expenses by eliminating
unnecessary positions
– Assigning power to lower
level employees can
shorten the decisionmaking process
– Delegation of authority
can improve employee
morale and decision
making skills
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•
Disadvantages
– May force some managers
to make major decisions
even though they lack
experience or prefer not to
make such decisions
– Assigning an excessive
amount of responsibilities
to middle and supervisory
managers might make it
hard for them to complete
all of their tasks
8–15
Decentralization (cont’d)
•
Proper Degree of Decentralization
– Depends on the skills of the managers who
could be assigned more responsibilities
 High
level managers should retain authority
for tasks requiring their specialized skills.
 Routine decisions about tasks should be
made by employees closely involved with
the tasks; may lead to better decisions.
– Centralization is often necessary to allocate
resources to various divisions in the firm and
maximize the firm’s value.
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8–16
Downsizing and Decentralization
•
Companies have attempted to cut
expenses by eliminating job positions
 Downsizing
has resulted in flatter
organization charts with fewer layers of
managers.
 Managerial jobs are eliminated and their
responsibilities are delegated to other
employees (decentralization).
 Downsizing has increased managers’ span
of control and lead to the combination of
various job responsibilities.
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8–17
Effect of Downsizing on Span of Control
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Exhibit 8.4
8–18
Types of Organizational Structure
•
Line organization
– Contains only line positions
 Job
positions are established to make
decisions that achieve specific goals.
•
Line-and-staff organization
– Includes both line and staff positions
 Staff
positions support the efforts of line
positions.
– Assigns authority from higher-level
management to employees
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8–19
Line Organization
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Exhibit 8.5a
8–20
Line and Staff Organization
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Exhibit 8.5b
8–21
Structure and Employee Input
•
Structure can be adjusted to obtain
greater employee input
– Matrix organization structure
 Enables
various parts of the firm to interact
and focus on specific projects
 Brings together employees with different
perspectives
 No one employee may feel responsible for
project
 Reduces time available for completing
normal tasks
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8–22
A Matrix Organization for a Special Project
to Design a New Computer System
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Exhibit 8.6
8–23
Structure and Employee Input
•
Intrapreneurship
 Structure
can be adjusted to obtain greater
employee input
– Encouraging employees to offer ideas for
changes that enhance the firm’s value.
– Assigning employees to act as if they were
entrepreneurs running their own companies.
•
Informal Structure
 Allows
employees to substitute for each
other to complete tasks on time.
 Reduces amount of manager involvement.
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8–24
The “grapevine”
•
The informal communication network
among employees
– Advantages
 Friendships
increase job satisfaction
 Allows information to flow from top to
bottom of the organization and vice versa.
– Disadvantages
 Employees
may get incorrect or
unfavorable information.
 Employee morale can be affected.
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8–25
Departmentalizing Tasks
•
Assign tasks and responsibilities to
different departments
– By employee functions
– By type of product produced
– By geographic location
– By type of customer
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8–26
Departmentalizing by Function
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Exhibit 8.7
8–27
Departmentalizing by Product
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Exhibit 8.8
8–28
Departmentalizing by Product and Function
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Exhibit 8.9
8–29
Flow of Information Across Departments
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Exhibit 8.10
8–30
Chapter Summary
•
Structure identifies responsibilities for
each job position and relationships
among positions
– Line-and-staff
– Matrix
– Intrapreneurship
•
Main methods of departmentalization
– Function
– Location
– Product
– Customer
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8–31
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Introduction to Business 3e - Jeff Madura