Internal factors
that impact
business
EASE OF STARTING YOUR OWN BUSINESS

External factors that impact business
Principles of organization – Chapter 9

Henri Fayol

Max Weber
Henri Fayol – pg 264

Fayol’s 10 Principles

1. Unity of Command – Workers report to only one boss
(manager).
-

Why is it important to have only one boss?
2. Hierarchy of authority – Workers should know to whom they
report to.
 In
extension, workers should know when they have
empowerment
Henri Fayol

3. Division of Labour – Responsibilities are divided into areas of
specialization
 List

some “specialties”
4. Subordination of individual interests to the general interest –
Workers are to think and act as a coordinated team. The goal
of the team outweighs each individual’s interests
 Ex:
Sports teams
Henri Fayol

5. Authority – Managers have the right to give orders and the
power to enforce obedience

6. Degree of centralization – Authority and decision making
powers should vary by circumstances
 Ex:
Large organization vs small organization
Henri Fayol

7. Clear communication channels – Workers should be ablt to
reach other in the firm quickly and easily

8. Order – Materials and people should be placed and
maintained in the proper location

9. Equity – Managers should treat employees and peers with
respect and justice

10. Esprit de corps – A spirit of pride and loyalty should be
created among people in the company
Max Weber – pg 265

A contemporary to Fayol. Came up with mostly the same
organizational theory

Promoted a pyramid shaped organization structure; great
trust should be placed in managers
 Thus,
workers should just do as they are told
What
is the problem with this?
Max Weber

In addition, Weber also emphasized 4 things:
 Job
descriptions
 Written
rules, guidelines and detailed records
 Consistent
 Staffing

procedures, regulations and policies
and promotion based qualifications
Weber believed in Bureaucracy
Centralization vs. decentralization of
authority

Centralized authority – decision making authority is
maintained at the top level of management.
 Ex:
at headquarters
 What
does CA enable a company to do?
Formal vs Informal organization

Formal organization – details lines of responsibility, authority,
and position

Informal organization – formed spontaneously when
people/employees come together and form cliques
Advantages of informal organization

Forges camaraderie and teamwork amongst workers

Fosters creativity
Centralization vs. decentralization of
authority

Decentralized authority – decision making authority is given to
lower-level managers and employees
 What
advantages could this have?
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AN ANSWER
Adv and disadv of centralized
authority
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Centralization vs. decentralization
of authority
Advantage
Disadvantage
Centralized authority
Greater top management
control
Less responsiveness to
customers
More efficiency
Less empowerment
Simpler distribution system
Interoganizational conflict
Consistent
brand/corporate image
Lower morale away from
headquarters
Adv and disadv of decentralized
authority
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AN ANSWER
Centralization vs. decentralization
of authority
Advantage
Disadvantage
Decentralized authority
Better adaptation to
Less efficiency
customer wants
More empowerment of
Complex distribution system
workers
Faster decision making
Less top-management
control
Higher morale
Diverse corporate image
Span of Control

The optimal number of subordinates a manager supervises or
should supervise

When work is standardized, one supervisor can manage many
workers
 Ex:

assembly line workers
When work is less standardized, supervisors manage less
workers
 Why?
Bureaucracy

When an organization has many layers of managers who set
rules and regulations

Workers are organized into groups, and each group has its
manager

Workers are essentially being controlled by their managers

Weber comments that this is a “threat to individual freedoms”
Tall vs. Flat organization structures

Tall (narrow) organization structures have many layers of
management where few people report to each manager

Flat (wide) organizational structures have few layers of
management where many people report to each manager
 In
a flat organizational structure, workers are empowered to
make decisions
Adv and disadv of a tall
organizational structure
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AN ANSWER
Advantage
Disadvantage
Tall organizational structure
More control by top
management
Less empowerment
More chances for
advancement
Greater specialization
Higher costs
Closer supervision
Less responsiveness to
customers
Slower decision making
Adv and disadv of a wide
organizational structure
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Advantage
Disadvantage
Wide organizational structure
Reduced costs
Fewer chances for
advancement
More responsiveness to
customers
Faster decision making
Overworked managers
More empowerment
Less specific management
expertise
Loss of control
Departmentalization

Dividing a company up into separate units
 Usually

by function, skills, expertise, or resource use
Examples:
 1.
A publishing company may have departments for
technical books, textbooks and novels.
 2.
International firms may have divisions for each country
they operate in – Japan, China, Korea
Departmentalization

Advantages:
 Improves
 Saves
efficiency
costs
 Professional
 Easy
development of employees
for top management to direct and control activities
Departmentalization

Disadvantages:
 Departments
may be isolated – lacking communication
 Employees
may identify with department goals instead of
the company’s goal
 Slow
 Less
response to external changes
diverse skill base in employees
 Groupthink
tendencies
Organizational models

Line organization – ‘Top down’ model, where orders come
from the boss, and employees follow orders
 Effective
if a business is small, ineffective when a business is
large… Why?
They
lack specialists and departmentalization to handle
diverse situations
Organizational models

Line and staff organization – have line personnel who are the
primary workers and staff personnel who support the line
personnel.

Staff personnel advise the line personnel and line personnel
have the authority to enact change and decision making
Organizational models

Matrix-style organization – Maintains the line and staff
organization, but is more flexible.

Managers can borrow people from different departments to
help on projects

What are some advantages? Disadvantages?
ONE MINUTE
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AN ANSWER
Communication flow

Chain of command – line of authority that moves from the top
of a hierarchy to the lowest level
 Worker  manager  supervisor  department head  …
CEO

5 types of communication flow
 Upward
 Downward
 Horizontal/lateral
 Diagonal
 External
Communication flow

1. Upward flow of communication – Feedback is reported to
upper level management. Subordinates may report issues,
concerns and performance reports to superiors.

Results in a more committed workforce, as workers voices and
opinions are heard by their superiors

Methods: surveys, complaint and suggestion boxes, letters from
employees
Communication flow

2. Downward – communication that comes from superiors
directly to subordinates.

Used to transmit work-related information to employees
 Giving
instructions
 Feedback

on performance
Methods: meetings, letters to employees
Communication flow

3. Lateral/Horizontal – communication between people at the
same levels of hierarchy
 Manager

to manager, employees to employees
Advantages: saves time, facilitates coordination and
cooperation, provides mutual support
Communication flow

4. Diagonal – Communication between managers and
workers of different departments

Used for completing projects or complex tasks requiring
assistance beyond a single department’s expertise
Communication flow

External – communication between managers and external
groups/companies
HOW HAVE PEOPLE BEEN INNOVATIVE?

Adapting to change, that’s how

What is adapting to change?
Restructuring

Goal: to redesign on organization such that is can more
effectively and more efficiently serve its customers

Inverted organization – upper level employees (supervisors,
managers) are expected to support lower level employees,
not to direct and give orders
 What
are some possible advantages?
 Advantages:
front-line workers are generally more
educated, customer satisfaction is high, better pay