Fourth Edition
PART 2 . . . . . . . . . . . . . . . . . . . . . . . .
Understanding the Business of Managing
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Chapter 6
Organizing the Business
Enterprise
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“Anyone can do any amount of
work provided it isn't the work
he's supposed to be doing at
the moment.”
~ Robert Benchley
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Key Topics
Organizational structure
Specialization and departmentalization
Responsibility, authority, delegation, and
accountability
Functional, divisional, matrix, and international
organizational structures
The informal organization and intrapreneuring
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Discussion
How much the people are more productive
when they’re doing work that they enjoy?
who has decision-making authority—is one
of the elements that you should carefully
examine when search for a job that is a good
fit for you.
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Organizational Structure
Specification\requirements
of the jobs to be done within
an organization and how
those jobs relate to one
another
Every organization must
develop the structure that is most
appropriate for it.
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Discussion
What are the elements which influence the
shape of the organization structure?
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What Elements Influence
Organizational Structure?
Purpose
Mission
Strategy
Size
Technology
External Environment
Organizational structure is usually quite fluid!
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Designing the Organizational
Structure?
Since all of these elements except the
purpose and mission are subject to frequent
change, organizational structure in most
successful organizations is quite fluid.
Discussion: how each element could impact
organizational structure.
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Organization Chart
CONTEMPORARY LANDSCAPE SERVICES, INC.
President/Owner
Mark Ferguson
Retail Shop
Manager
Buyer
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Office
Manager
Nursery
Manager
Buyer
Supervisor
Landscape
Operations
Manager
Residential
Manager
Commercial
Manager
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Organization chart
Organization chart: A diagram depicting a
company’s structure and showing employees
where they fit into its operations.
Chain of command: The reporting
relationships within a company that are
illustrated on the organization chart.
Discussion:
why it’s important for new employees to see an
organization chart.
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The Building Blocks of
Organizational Structure
SPECIALIZATION
What needs to
be done, and
who will do it?
DEPARTMENTALIZATION
Customer
Geographic
Product
Functional
Process
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The Building Blocks of
Organizational Structure
Specialization: The process of identifying
the specific jobs that need to be done and
designating the people who will perform
them. The need to specialize jobs becomes
especially important as organizations grow.
Importance of specialization
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The Building Blocks of
Organizational Structure
Departmentalization: Departmentalization The process of grouping jobs into
logical units. In general, it occurs along the following lines (or any combination
of them):
1.
Customer: according to types of customers likely to buy a given product.
Example: When a company divides callers into new and current customers in
order to sell them the appropriate products. 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. Example: When a garment factory has a department for
cutting, for sewing, etc.
4.
Geographic: Departmentalization according to areas served by a business.
Example: When a food company has a department to serve each region of the
U.S.
5.
Functional: Departmentalization according to the function or activities of
similar groups. Example: When a company has a different department for
marketing, accounting, etc.
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Function versus process-based
organisation
New Product Development
R&D
Manufacturing
Customer
Sales
Order Fulfillment
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Cross-Functionality of Processes
Process: New product development process
Needs
Marketing
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Research Design
Test Process Equip Product
Produ Design design start
R&D
Manufacturing
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Which organizational structure do you
recommend?
Most medium and large companies are
departmentalized in different ways at
different levels. For example, within each
geographic department, a firm might be
organized on a functional basis.
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What is the Decision-Making
Hierarchy
It defines who makes which decisions in the
organization.
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The Decision-Making Hierarchy
Assigning Tasks
Performing Tasks
Distributing Authority
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The Decision-Making Hierarchy
Assigning tasks is a matter of responsibility—who has the
duty to complete a task--and authority—who has the power
to make the decisions necessary to complete a task. In most
successful organizations, responsibility and authority for
each task are closely linked and balanced.
Performing tasks involves delegation—the assignment of a
task to a subordinate—and accountability—the
subordinate’s liability to actually perform the task.
Effective delegation is crucial to effective organizations.
Distributing authority relates to the pattern of who holds
authority in the organization. Is authority concentrated in
the hands of senior managers, or is it pushed down to the
lower levels of the organization?
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Discussion
Have you ever been in situations where
instructions were not clearly communicated?
What was the effect on worker productivity?
Was the task performed adequately? Why or
why not? How did the worker feel in this
situation?
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Delegating authority
Delegating authority tends to be especially
difficult for small business owners for the
following reasons:
1.
Many fear that employees can’t do anything as well as
they can.
2.
Many fear that something will go wrong if someone
else takes over a job.
3.
Many lack time for long range planning that is
required for delegation.
4.
Many have a sense that they are in the dark about
industry trends and competition because of the time
they devote to day-to-day operations. (they do not
have knowledge and experience).
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Issues With Delegating
Big Business Managers:
Fear that subordinates don’t really know how to
do the job
Fear that a subordinate might “show
up”\humiliate the manager by doing well
Desire for control
Lack of delegating ability
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Discussion
How to solve the problem of lack of
delegation?
1.
Acknowledge subordinates limitations
2.
Train subordinates to delegate
3.
Recognize that successful subordinates
reflect well on the manager
4.
Seek training in how to delegate effectively
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Discussion
: What are the benefits of delegating
effectively? The drawbacks of not
delegating effectively?
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Centralized and Decentralized
Organizations
Centralized
Top managers hold most
decision-making authority
Decentralized
Lower level managers hold
significant decision-making
authority
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Organizational Structure and Span of Control
Relatively narrow
span of control
Relatively wide span
of control
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Organizational Structure and Span of Control
The concepts of tall and flat organizations are closely
related to the degree of centralization:
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.
Span of control: The number of people who report to each
manager. In tall organizations, span of control tends to be
narrow, while in flat organizations, span of control tends to
be wide.
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Discussion
Identify the elements that influence span of
control.
complexity and similarity of subordinates’
tasks, the subordinates’ abilities, the
supervisor’s managerial skills, etc.)
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Forms of Authority
Line Authority
Line Departments
Staff Authority
Staff Members
Committee and Team
Authority
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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. Solid lines and dotted lines
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.
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Basic Forms of
Organizational Structure
Functional
Organization
Divisional
Organization
Matrix
Organization
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International
Organization
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Basic Forms of
Organizational 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.
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A Matrix Organization
MARTHA STEWART
Area
Specialists
Media Group
Magazines
Books
Internet
Radio/
Newspaper
Merchandising Group
Network/
Cable TV
Kmart
line
Catalog
line
Sears
Paint
Specialty
retailing
Cooking
Entertainment
Weddings
Crafts
Gardening
Home
Holidays
Children
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An International Organization
CEO
Retail
Division A
Retail
Division B
Latin
America
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International
Division
Europe
Asia
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An International Organization
The previous slide shows a typical example
of an international organizational structure.
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.
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The Future of
Organizational Structure
Boundaryless Organizations
Team Organizations
Virtual Organizations
Learning Organizations
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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.
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The Informal Organization
A Powerful Dynamic
Informal Groups
The grapevine\gossip
Intrapreneuring
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The Informal Organization
A 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.
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The Informal Organization
A 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.
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Chapter Review
What is an organization chart? What purpose does it serve?
An organization chart represents the firm’s structure and shows where
employees fit into the hierarchy. Organization charts depict the extent
of line and staff authority, departmentalization, and span of control at
various levels.
Explain the significance of size as it relates to the organizational
structure. Describe the changes that are likely to occur as an
organization grows.
Larger firms develop more complex organizational structures. As a firm’s
size increases, job specialization (and at least some decentralization)
becomes increasingly important, followed by departmentalization, and
a more definitive decision-making hierarchy.
Why is a company’s informal organization important?
The everyday social connections among employees can transcend formal job
related relationships, creating a very powerful dynamic that can either
support or disrupt a firm’s effectiveness.
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Chapter Review
What is the difference between responsibility and authority?
Responsibility is the duty to perform an assigned task, and authority is the power to
make the decisions necessary to compete that task. Responsibility and
authority should be closely linked for any given assignment.
Why do some managers have difficulties in delegating authority? Why does
this problem tend to plague smaller businesses?
Some of the reasons managers have difficulty delegating authority include:
1.
Fear that employees can’t do anything as well as they can
2.
Fear that something will go wrong if someone else does it
3.
Fear that that employees will “show up” the manager
4.
Too bogged down in day-to-day activities to delegate
5.
Don’t know how to delegate
6.
Want to keep control
Delegating is especially difficult for small business owners because they
typically began by doing everything themselves and having complete control.
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