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Bateman
Snell
Management
Competing
in the
New Era
5th
Edition
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Part Three
Chapter 8 - Organization Structure
Chapter Outline
Fundamentals of Organizing
The Vertical Structure
The Horizontal Structure
Organizational Integration
Looking Ahead
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives
After
studying Chapter 8, you will know:
 how
differentiation and integration influence your
organization’s structure
 how authority operates
 the roles of the board of directors and the chief executive
officer
 how span of control affects structure and managerial
effectiveness
 how to delegate work effectively
 the difference between centralized and decentralized
organizations
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives (cont.)
After
studying Chapter 8, you will know:
 how
to allocate jobs to work units
 how to manage the unique challenges of the matrix
organization
 the nature of important integrative mechanisms
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Fundamentals Of Organizing
Organization
chart
 depicts
the positions in the firm and how they are arranged
 provides a picture of the reporting structure
Differentiation
 aspect
of the organization’s internal environment
division
of labor - assignment of different tasks to different
people or groups
specialization - process in which different individuals and units
perform different tasks
 differentiation
is high when there are many subunits and
many kinds of specialists who think differently
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Fundamentals Of Organizing
(cont.)
Integration
 degree
to which differentiated units work together and
coordinate their efforts
all
the specialized tasks in an organization cannot be performed
completely independently
coordination - procedures that link the various parts of the
organization to achieve the organization’s overall mission
 any
job activity that links different work units performs an
integrative function
 the more a firm is differentiated, the greater the need for
integration among the units
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Conventional Organization Chart
President
Finance
R&D
Marketing
Chemical
Products
Personnel
Metal
Products
Personnel
Finance
Personnel
Finance
Manufacturing
Sales
Manufacturing
Sales
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Vertical Structure
Authority
in organizations
 authority
- the legitimate right to make decisions and to tell
other people what to do
resides

in positions rather than people
in private business enterprises, owners have ultimate authority
traditionally
authority has been the primary means of running an
organization
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Vertical Structure (cont.)
Authority
in organizations (cont.)
 board
of directors - elected by the stockholders to run the
organization
led
by a chair
performs three functions
selecting, assessing, rewarding, and perhaps replacing the CEO
 determining the firm’s strategic direction and reviewing financial
performance
 assuring ethical, socially responsible, and legal conduct

inside

directors - the firm’s top managers who sit on the board
outside directors - are likely run other companies
successful
boards tend to be active, critical participants in
determining company strategies
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Vertical Structure (cont.)
Authority
in organizations (cont.)
 chief
executive officer (CEO) - occupies the top of the
organizational pyramid
authority
officially vested in the board of directors is assigned to
the CEO
CEO personally responsible to the board and owners
 top
management team - typically comprised of the CEO,
president, chief operating officer, chief financial officer, and
other key executives
frequently
meet with the CEO to make important decisions
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The Vertical Structure (cont.)
Hierarchical
 hierarchy
levels
- the authority levels of the organizational pyramid
top
management - strategic managers in charge of the entire
organization
middle management - in charge of plants or departments
lowest levels - made up of lower management and workers

 trend
Span
called the operational level of the organization
in U.S. is to reduce the number of hierarchical layers
of control
 the
number of subordinates who report directly to a manager
 narrow spans produce tall organizations
 wide spans produce flat organizations
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Factors Affecting The Optimal
Span Of Control
Ambiguity
of work
Subordinate
preference for
autonomy
Similarity of jobs
and performance
measures
Optimal
Span of
Control
Subordinate
training and
access to
information
Capability and
supportiveness
of manager
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The Vertical Structure (cont.)
Delegation
 assignment
of authority and responsibility to a subordinate
 can occur between any two individuals in any type of
structure with regard to any task
 responsibility - assignment of a task that an employee is
supposed to carry out
common
for people to have more responsibility than authority
 accountability
- expectation that employees perform a job,
take corrective action when necessary, and report upward on
the status and quality of their performance
 managers remain responsible and accountable for their own
actions and those of their subordinates
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The Vertical Structure (cont.)
Delegation
(cont.)
 advantages
of delegation
permits
getting work done through others
manager saves time
manager frees herself/himself to devote energy to other
important, higher-level activities
provides subordinate with a more important job
from the organization’s perspective, jobs are done more
efficiently and cost-effectively
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Steps In Effective Delegation
Define the goal succinctly
Select the person for the task
Solicit the subordinate’s view
about suggested approaches
Give the subordinate the authority, time, and resources
(people, money,equipment) to perform the assignment
Schedule checkpoints for
Reviewing progress
Follow through by discussing
Progress at appropriate intervals
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Vertical Structure (cont.)
Decentralization
 result
of the delegation of responsibility and authority
 centralized organization - high-level executives make most
decisions and pass them down to lower levels for
implementation
 decentralized organization - lower-level managers make
important decisions
most
U.S. executives understand the importance of
decentralizing decision making
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Horizontal Structure
Basic
concepts
 departmentalization
- subdividing the organization into
smaller subunits
line
departments - have responsibility for the principle activities
of the firm
deal directly with the organization’s primary goods and services
 line managers typically have:
 substantial authority and power
 ultimate responsibility for major operating decisions
 accountability for “bottom-line” results

staff

departments - provide specialized support for line units
moving toward role focused on strategic support and expert advice
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The Horizontal Structure (cont.)
Functional
organization
 jobs
(and departments) are specialized and grouped
according to business functions and the skills they require
e.g.,
production, marketing, R&D, human resources, and finance
 at
the most basic level, functional structure is organized
around the company’s value chain
value
chain - sequence of activities that flow from raw materials
to the delivery of a product or service
 common
in both large and small organizations
 may be most appropriate in rather simple, stable
environments
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The Horizontal Structure (cont.)
Functional
organization (cont.)
 advantages
of functional structure include:
economies
of scale can be realized
effective environmental monitoring
performance standards are better maintained
greater opportunity for specialized training and in-depth skill
development
technical specialists are relatively free of administrative work
decision making and lines of communication are simple and
clearly understood
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Horizontal Structure (cont.)
Functional
organization (cont.)
 disadvantages
of functional structure
people
may care more about their own function than about
company as a whole
may lose focus on overall product quality and customer
satisfaction
managers do not develop knowledge of the other areas of the
business

become specialists, not generalists
conflicts
arise among functions and communications suffer
accordingly
high differentiation may create barriers to coordination across
functions
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Generic Value Chain And
Functional Structure
Support activities
Firm infrastructure
Human resource management
Technology development
Procurement
Inbound Operations Outbound Marketing
logistics
logistics And sales
Primary activities
Service
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Functional Structure
President
Staff departments
Information
technology
services
Procurement
Inbound
logistics
Human
resources
Operations
Outbound
logistics
Marketing
And sales
Service
Line departments
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The Horizontal Structure (cont.)
Divisional
organization
 units
grouped around products, customers, or geographic
regions
 groups all functions into a single division
duplicates
each function across all of the divisions
 separate
divisions may act almost as separate businesses
 work autonomously to achieve the goals of the organization
 several ways to create divisional structure
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Horizontal Structure (cont.)
Divisional
organization (cont.)
 product
divisions - all functions that contribute to a given
product are organized under one manager
advantages
information needs are managed more easily
 people have full-time commitment to a particular product line
 task responsibilities are clear
 people receive broader training
 flexibility of structure better suits it for unstable environments

disadvantages
difficult to coordinate across product lines
 managers may not acquire depth of functional knowledge
 duplication of effort is expensive

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Product Divisions At The limited
CEO (Les Wexner)
Apparel
Intimate Brands
Support
Businesses
Express
Victoria’s Secret
Limited Stores
Bath & Body
Works
White Barn
Candle Co.
Distribution
Services
Express
Limited Stores
Real Estate
Store Planning
Design Services
Structure
the
Lerner New York
Lane Bryant
New York & Co.
limited
Brand &
Creative Services
Technology
Services
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Horizontal Structure (cont.)
Divisional
organization (cont.)
 customer
and geographical divisions
build
divisions around customer or geographical distinctions
advantages
can focus on customer needs
 can provide faster and better service

disadvantage

duplication of activities across many customer groups and
geographic areas is expensive
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Geographical Organization
Chairman
CEO
Northeast
regional
manager
General
managers for:
New York
Philadelphia
Boston
Midwest
regional
manager
Southeast
regional
manager
Southwest
regional
manager
Pacific
regional
manager
General
managers for:
Cleveland
Chicago
St. Louis
General
managers for:
Raleigh
Atlanta
Orlando
General
managers for:
Dallas
Houston
Albuquerque
General
managers for:
Seattle
San Francisco
Los Angeles
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Horizontal Structure (cont.)
Matrix
organization
 hybrid
form of organization
 dual reporting relationships in which some managers report
to two superiors
one
functional and one product
 advantages
higher
degree of flexibility and adaptability
 disadvantages
violation

of the unity of command principle
reporting to two superiors can create confusion
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Matrix Organizational Structure
Chairman
CEO
Project
management
Functional
managers
Production
Engineering
Personnel
Accounting
Project
Manager
A
Production
group
Two-boss
manager
Engineering
group
Two-boss
manager
Personnel
group
Two-boss
manager
Accounting
group
Two-boss
manager
Project
Manager
B
Production
group
Two-boss
manager
Engineering
group
Two-boss
manager
Personnel
group
Two-boss
manager
Accounting
group
Two-boss
manager
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Horizontal Structure (cont.)
Matrix
organization (cont.)
 matrix
the
survival skills - depend on position in the matrix
matrix diamond illustrates needed skills
 matrix
form today - resurgence based on:
pressures to consolidate costs and be faster to market
 need for coordination across countries in global business

understanding

of the matrix has increased
matrix is not a structure, but a process
 relationships allow information to flow through the
organization
 norms, values, and attitudes shape how people think
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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The Matrix Diamond
Top Executive
Needs to balance power
and emphasis between
functions and divisions
Functional Manager
Must collaborate and
manage conflicts with
product/division manager
Product Manager
Must collaborate and
manage conflicts with
functional manager
“2-Boss” Manager/Employee
Must learn how to respond to two
Superiors and prioritize multiple
demands
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Organizational Integration
Coordination
by standardization
 standardization
- establishing common rules and procedures
that apply uniformly to everyone
constrains
actions
integrates various units by regulating what people do
 formalization
- reliance on rules and regulations to promote
conformance
should
apply to most (if not all) situations
most applicable in relatively stable and unchanging
circumstances
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Organization Integration (cont.)
Coordination
by plan
 interdependent
units are required to meet deadlines and
objectives that contribute to a common goal
 does not require a high degree of stability and routinization
units
free to modify their actions as long as they are able to meet
deadlines and targets required for working with others
Coordination
by mutual adjustment
 involves
feedback and discussion to jointly determine how to
approach problems and devise mutually agreeable solutions
 allows for flexible coordination to deal with novel problems
 costly from the standpoint of time
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.