Foundations of
Business 3e
Pride, Hughes, &
Kapoor
Creating a Flexible Organization
Chapter
7
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 2
Learning Objectives
1. Understand what an organization is and identify its
characteristics.
2. Explain why job specialization is important.
3. Identify the various bases for departmentalization.
4. Explain how decentralization follows from delegation.
5. Understand how the span of management describes
an organization.
6. Describe the four basic forms of organizational structure.
7. Describe the effects of corporate culture.
8. Understand how committees and task forces are used.
9. Explain the functions of the informal organization and the
grapevine in a business.
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 3
What Is an Organization?

A group of two or more people working together
to achieve a common set of goals

Developing organization charts
• Organization chart
– A diagram that represents the positions and
relationships within an organization
• Chain of command
– The line of authority that extends from the highest to
the lowest levels of the organization
• Staff (advisory) positions
– Jobs that are not part of the direct chain of command
in the organization
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 4
A Typical Corporate Organization Chart
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Chapter 7 | Slide 5
Major Considerations for
Organizing a Business

Job design

Departmentalization

Delegation

Span of management

Chain of command
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 6
Job Design

Job specialization
• The separation of activities into distinct tasks and the
assignment of different tasks to different people

Rationale for specialization
• The “job” of the organization is too large for one
•
•
•
•
person to accomplish.
A worker learning only a specific, highly specialized
task should be able to learn to do it efficiently.
Workers do not lose time switching from one
operation to another.
Specialization makes it easier to design machinery
to assist those who do the job.
Specialization makes it easier to train new workers.
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 7
Job Design (cont.)

Alternatives to job specialization
• Job rotation systematically shifts employees from
one job to another
• Job enlargement
• Job enrichment
Needs photo credit
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 8
Departmentalization

Grouping jobs into manageable units

Common bases for departmentalization
• By function
• By product
• By location
• By customer
• Combinations
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 9
Multibase Departmentalization for
New-Wave Fashions, Inc.
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 10
Delegation, Decentralization, and Centralization

Delegation—assigning part of a manager’s
work and power to other workers
• Steps in delegation
–
–
–
Responsibility—the duty to do a job or perform a task
Authority—the power, within an organization, to accomplish
an assigned task
Accountability—the obligation to accomplish an assigned
job or task
• Barriers to delegation
–
–
–
Fear the work will not get done
Fear the work will be done too well
Inability to plan and assign work effectively
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 11
Steps in the Delegation Process

The manager assigns
responsibility.

The subordinate is
empowered to do
the task.

Ultimate accountability
remains with the
manager.
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 12
Decentralization of Authority

Decentralized organization
• Management consciously attempts to spread authority
widely in the lower levels of the organization

Centralized organization
• Authority is concentrated at the upper levels of the
organization

Factors favoring decentralization
• A complex and unpredictable business environment
• Decisions that carry low risk or that are unimportant
• Highly capable lower-level managers with strong
decision-making skills
• Past practices of the firm in decentralizing its structure
and decision-making processes
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 13
The Span of Management

The number of workers who report
directly to one manager
• Wide span
– Large number of subordinates to one manager
• Narrow span
– Only a few subordinates to one manager
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 14
The Span of Management (cont.)
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Chapter 7 | Slide 15
The Span of Management (cont.)

Organizational height—number of layers,
or levels, of management in a firm
• Flat organizations
–
Have wider spans of management and fewer levels
– Require managers to perform more administrative
tasks and to spend more time supervising subordinates
• Tall organizations
–
Have narrow spans of management and many levels
– Have higher administrative costs (more managers)
– May distort internal communications during passage
of the communications through the multiple levels
of organization
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 16
Forms of Organizational Structure

Line structure
• The chain of command goes directly from person to
person throughout the organization
• Simplicity allows for quick decision making and
direct accountability
• Most suitable for small organizations with lower
volume of activities than medium or large
organizations
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 17
Forms of Organizational Structure (cont.)

Line-and-staff structure
• Utilizes the chain of command from a line structure
in combination with the assistance of staff managers
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Chapter 7 | Slide 18
Line and Staff Managers
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 19
Forms of Organizational Structure (cont.)

Line-and-staff structure (cont.)
• Line managers make decisions and give orders to
subordinates.
–
Line authority—line managers can make decisions and
issue directives related to organizational goals
• Staff managers provide support, advice, and
expertise.
–
–
Advisory authority—the expectation that line managers will
consult with staff managers before making decisions
Functional authority—staff managers’ authority to make
decisions and issue directives within their area of expertise
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 20
Forms of Organizational Structure (cont.)

Line-and-staff structure (cont.)
• Reasons for conflict between line and staff managers
– Staff managers often have more formal education.
– Staff managers are sometimes younger and more
ambitious.
– Line managers may perceive staff managers as a threat.
– Staff managers may become angry if their
recommendations are not adopted.
• Minimizing conflict between line and staff managers
– Integrate line and staff managers into one team.
– Ensure that responsibilities are clearly defined.
– Hold both line and staff managers accountable for results.
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 21
Forms of Organizational Structure (cont.)

Matrix structure
• A structure that combines vertical and horizontal
lines of authority, usually by superimposing product
departmentalization on functional
departmentalization
• Authority flows both down and across
• Employees on cross-functional teams report to both
the project manager in charge of the team and to
their superiors in their home-base functional
department
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Chapter 7 | Slide 22
A Matrix Structure
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Chapter 7 | Slide 23
Forms of Organizational Structure (cont.)
Matrix Structure (cont.)
Advantages
• Added flexibility
• Increased productivity
• Higher morale
• Increases in creativity and
innovation
• Personal development of
team members
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Disadvantages
• Chain of command conflicts
• May take longer to resolve
problems and reach solutions
• Personality clashes
• Poor communications
• Undefined individual roles
• Unclear responsibilities
• Difficulty in determining how
to reward individual and team
performance
Chapter 7 | Slide 24
Forms of Organizational Structure (cont.)

Network structure (virtual organization)
• Administration is the primary function, and most other
functions are contracted out to other firms.
• Strength
–
Flexibility allows the organization to adjust quickly to
changes
• Weaknesses
– Difficulty controlling the quality of work by other
organizations
– Low morale and high turnover of hourly workers
– Vulnerability of relying on outside contractors
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 25
Corporate Culture

The inner rites, rituals, heroes, and
values of a firm
• Indicators of corporate culture
– The physical setting
(e.g., building and office layout)
–
Corporate statements about itself
– How the company greets its guests
– How employees spend their time at work
(alone or in groups)
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 26
Types of Corporate Cultures

Networked culture
• Trust and friendship among employees
• Strong commitment to the organization
• Informal environment

Mercenary culture
• Passion, energy, sense of purpose, excitement for work
• Intense, focused, determined to win

Fragmented culture
• Employees not friends; work “at” (not “for”) organization
• Employees have autonomy, flexibility, equality

Communal culture
• Friendship, commitment, focus on performance, high energy
• Lives revolve around the product; success is celebrated by all
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 27
Corporate Culture (cont.)
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 28
Corporate Culture (cont.)

Cultural change is needed when
• A company’s environment changes
• The industry becomes more competitive
• Company performance is mediocre
• The company is growing or becomes a large firm
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 29
Committees and Task Forces

Committees
• Types
–
Ad hoc—created for a specific short-term purpose
– Standing—relatively permanent; charged with performing
some recurring task
– Task force—established to investigate a major problem or pending
decision
• Differences with individual action
– Advantages
–
–
Members bring more information and knowledge;
more accurate decisions; results communicated
more effectively
Disadvantages
–
Decision making takes longer; may reach unnecessary
compromises; one person may dominate
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 30
The Informal Organization

Pattern of behavior and interaction that stems
from personal rather than official relationships
• Informal groups
–
Formed by the members themselves to accomplish goals
that may or may not be relevant to the organization
–
Can be powerful forces in organizations, exerting positive
as well as negative influences
• The grapevine
–
Informal communication network within an organization
that is completely separate from—and sometimes faster
than—the organization’s formal communication channels
–
May be accurate or distorted; managers should be aware
and use appropriately
© 2013 South-Western, a part of Cengage Learning. All rights reserved.
Chapter 7 | Slide 31