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Adapting
Organizations
to Today’s
Markets
Nickels
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8-1
McGraw-Hill/Irwin
Understanding Business, 8e
McHugh
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CHAPTER
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8
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McHugh
1-1
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
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* Building an Organization from the Bottom Up
*

Organizing or Structuring: Determine what work
needs to be done.
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


Departmentalization: The process of setting up
individual departments to do specialized tasks.
Assign Authority & Responsibility:




Division of Labor: Divide the tasks among others.
Job Specialization: Dividing the tasks into smaller jobs.
Organization Chart/Organogram
Allocating Resources:
Assigning Specific Tasks:
Establishing Procedures:
8-2
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*
*
The Development of Organization Design

The shift from small business to large company

Mass Production: Method for efficiently producing
large quantities of goods.

8-3
Economies of Scale: The situation in which companies
can reduce theirs production costs if they can purchase
raw materials in bulk; the average cost of goods goes
down as production levels increase.
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*
*
Fayol’s Principles of Organization
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Unity of Command
Hierarchy of Authority
Division of Labor
Subordination of Individual Interests to the General
Interest
Authority
Degree of Centralization
Clear Communication Channels
Order
Equity
Esprit de Corps
8-4
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*
*
Max Weber’s
Organizational Principles




8-5
Job Descriptions
Written Rules, Decision guidelines and
detailed records
Consistent Procedures, Regulations, Policies
Staffing/Promotions Based on Qualifications
*
* Turning Principles into Organization Design
*



Hierarchy: A system in which one person is at
the top of the organization and there is a ranked
or sequential ordering from the top down of
managers who are responsible to that person.
Chain of Command: The line of authority that
moves from the top of a hierarchy to the lowest
level.
Bureaucracy: An organization with many layers
of managers who set rules and regulations and
oversee all decisions.
8-6
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* Decisions to Make in Structuring Organizations
*  Centralized Authority: An organization structure


in which decision-making authority is maintained
at the top level of management.
Decentralized Authority: An organization
structure in which decision-making authority is
delegated to lower-level managers who are more
familiar with local conditions than headquarters
management could be.
Span of Control: The optimal number of
subordinates a manager supervises or should
supervise.
8-7
*
*
*
Centralization
(No Delegation)
Advantages




8-8
Greater Top-Management 
Control
More Efficiency

Simpler Distribution

System
Stronger Brand/Corporate
Image

Disadvantages
Less Responsiveness
to Customers
Less Empowerment
Interorganizational
Conflict
Lower Morale Away
from Headquarters
*
*
*
Decentralization
(Delegate Authority)
Disadvantages
Advantages




Better Adaptation to
Customer Wants
More Empowerment of
Workers
Faster Decision
Making
Higher Morale
8-9

Less Efficiency

Complex Distribution
System
Less Top-Management
Control
Weakened Corporate
Image


*
*
*
Organization Structures

Tall organization: An organizational structure in
which the pyramidal organization chart would be
quite tall because of the various levels of
management.

Flat organization: An organization structure that has
few layers of management and a broad span of
control.
8-10
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*
*
Organizational Structures



8-11
Tall Organizations
Many Layers of
Management
High Cost of
Management
Narrow Span of
Control
Flat Organizations

Current Trend

Creation of Teams

Broad Span of Control
*
*
*
Span of Control - Narrow
Disadvantages
Advantages




More Control by Top
Management
More Chances for
Advancement
Greater Specialization
Closer Supervision
8-12




Less Empowerment
Higher Costs
Delayed Decision
Making
Less Responsiveness to
Customers
*
*
*
Span of Control - Broad
Advantages




Reduced Costs
More Responsiveness
to Customers
Faster Decision
Making
More Empowerment
8-13
Disadvantages




Fewer Chances for
Advancement
Overworked Managers
Loss of Control
Less Management
Expertise
*
*
*
Departmentalization and its
advantage/disadvantage

Departmentalization: The dividing of organizational
functions into separate units.
8-14
*
*
*
Departmentalization
by Function
Advantages



Skill Development
Economies of Scale
Good Coordination
Disadvantages
• Lack of
Communication
• Employees Identify
with Department
• Slow Response to
External Demands
• Narrow Specialists
• Groupthink
8-15
*
*
*
Ways of Departmentalization

By Product
By Function
 By Customer
Group
 By Geographic
Location
 By Process

8-16
*
*
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Organizational Models

Line organization: An organization that has direct
two-way lines of responsibility, authority, and
communication running from the top to the bottom of
the organization, with all people reporting to only one
supervisor.

Line-and-staff organization: An organization that
has both line and staff personnel.
8-17
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*
*
Organizational Models (cont…)

Line personnel: Employees who are part of the
chain of command that is responsible for achieving
organizational goals.

Staff personnel: Employees who advise and assist
line personnel in meeting their goals.

Matrix-style organization: An organization in which
specialists from different parts of the organization are
brought together to work on specific projects but still
remain part of a line-and-staff structure.
8-18
*
*
*
Line Organizations
Disadvantages
Advantages
Clear Authority &
Responsibility
 Easy to
Understand
 One Supervisor
Per Employee

8-19
Inflexible
 Few Specialists for
Advice
 Long Line of
Communication
 Difficult to Handle
Complex Decisions

*
*
*
Line/Staff Organizations
Line Personnel
Staff Personnel

Formal Authority

Advise Line
Personnel

Make Policy
Decisions

Assist Line
Personnel
8-20
*
*
*
Matrix Organizations
Disadvantages
Advantages

Flexibility

Costly/Complex

Cooperation &
Teamwork

Confusion in Loyalty

Requires Good
Interpersonal Skills
& Cooperation

Not Permanent

Creativity

More Efficient Use of
Resources
8-21
*
*
*
Cross Functional Self-Managed Teams

Groups of employees from different departments
who work together on a long-term basis.
Self-managed means they are empowered to make
decisions without management approval.
 Cross
functional team works better when it includes
customers, suppliers, and distributors too.
8-22
*
* Managing the Interactions among Firms
*  Networking: Using communications technology and
other means to link organizations and allow them to
work together on common objectives.

Real Time: The present moment or the actual time in
which something takes place.

Virtual
Corporations:
A
temporary
networked
organization made up of replaceable firms that join and
leave as needed.
8-23
*
* Benchmarking and Core Competencies
*  Benchmarking: Comparing an organization’s
practices, processes, and products against the
world’s best.

Core Competencies: Those functions that the
organization can do as well as or better than any
other organization in the world.
8-24
*
* Adapting to Change
*  Digital Natives: Young people who have grown up
using the internet and social networking.

Restructuring: Redesigning an organization so that
it can more effectively and efficiently serve its
customers.

Inverted Organization: An organization that has
contact people at the top and the chief executive
officer at the bottom of the organization chart.
8-25
* Creating a Change-Oriented Organizational
* Culture
*  Organizational (Corporate) Culture: Widely shared
values within an organization that provide unity and
cooperation to achieve common goals.

8-26
Myths, stories, traditions, values etc are part of corporate
culture
*
* Managing the Informal Organization
*  Formal Organization: the structure that details
lines of responsibility, authority, and position; that is,
the structure shown on organization charts.

Informal Organization: The system that develops
spontaneously as employees meet and form cliques,
relationships, and lines of authority outside the
formal organization.
8-27