CHAPTER 8 Creating a Flexible Organization NOTE FROM THE AUTHORS Having outlined in the preceding chapter the management of a business organization, in this chapter we examine the organization itself. First, we define organization from a business perspective. Then we discuss five dimensions of organizational structure: (1) job specialization, (2) departmentalization, (3) centralization, (4) span of management, and (5) chain of command. Next, we discuss the various methods of combining these individual elements within a single business structure. We introduce four approaches to organizational structure—bureaucratic, matrix, cluster, and network—and present the advantages and disadvantages of each. We conclude the chapter with a brief discussion of how corporate culture, intrapreneurship, committees, coordination techniques, informal groups, and the grapevine affect an organization. LEARNING OBJECTIVES After studying this chapter, students should be able to: 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. Understand how the chain of command is established by using line and staff management. 7. Describe the four basic forms of organizational structure: bureaucratic, matrix, cluster, and network. 8. Summarize how corporate culture, intrapreneurship, committees, coordination techniques, informal groups, and the grapevine affect an organization. Copyright © Houghton Mifflin Company. All rights reserved. 2 Chapter 8: Creating a Flexible Organization BRIEF CHAPTER OUTLINE I. What Is an Organization? A. Developing Organization Charts B. Five Steps for Organizing a Business II. Job Design A. Job Specialization B. The Rationale for Specialization C. Alternatives to Job Specialization III. Departmentalization A. By Function B. By Product C. By Location D. By Customer E. Combinations of Bases IV. Delegation, Decentralization, and Centralization A. Delegation of Authority 1. Steps in Delegation 2. Barriers to Delegation B. Decentralization of Authority V. The Span of Management A. Wide and Narrow Spans of Control B. Organizational Height VI. Chain of Command: Line and Staff Management A. Line and Staff Positions Compared B. Line-Staff Conflict VII. Forms of Organizational Structure A. The Bureaucratic Structure B. The Matrix Structure C. The Cluster Structure D. The Network Structure VIII. Additional Factors that Influence an Organization A. Corporate Culture B. Intrapreneurship C. Committees D. Coordination Techniques E. The Informal Organization 1. Informal Groups 2. The Grapevine Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization GUIDE FOR USING TRANSPARENCY ACETATES Figure 8.1(A) This transparency illustrates a typical corporate organization chart. Figure 8.1(B) This transparency illustrates a typical corporate organization chart. Figure 8.2 This transparency illustrates multibase departmentalization. Figure 8.3 This transparency shows the steps in the delegation process. Figure 8.4 This transparency illustrates the difference between a wide span of management and a narrow span of management. Figure 8.5 This transparency shows that a line manager has direct responsibility for achieving the company’s goals, whereas a staff manager supports and advises line managers. Figure 8.6 This transparency illustrates a matrix organization. Transparency 8.A This transparency is a chapter outline. Transparency 8.B This transparency is an exercise that can be used for class discussion. Suggested answers for this exercise appear at the end of this chapter in this instructor’s manual. Transparency 8.C This transparency is a debate issue that can be used for class discussion. Transparency 8.D This transparency is a chapter quiz consisting of five multiple-choice questions. (Answers are: 1. e; 2. b; 3. b; 4. a; and 5 d.) Transparency 8.E(A) This transparency illustrates the evolution of the organization of a clothing store. Transparency 8.E(B) This transparency illustrates the evolution of the organization of a clothing store. Transparency 8.F This transparency illustrates the difference between a tall organization and a flat organization. Transparency 8.G This transparency presents a definition of organization. Copyright © Houghton Mifflin Company. All rights reserved. 3 4 Chapter 8: Creating a Flexible Organization COMPREHENSIVE LECTURE OUTLINE Transparency 8.A—Chapter Outline Transparency 8.D—Chapter Quiz Inside Business: Nike Gets Organized Video Segment 8.A—Overview (Time 1:17) I. WHAT IS AN ORGANIZATION? Transparency 8.G An organization is a group of two or more people working together to achieve a common set of goals. A. B. A neighborhood dry cleaner owned and operated by a husband and wife team is an organization. So are IBM, Rubbermaid, and the Home Depot. Developing Organization Charts. An organization chart is a diagram that represents the positions and relationships within an organization—that is, it reveals the company’s organizational structure. Transparency Figure 8.1(A), Transparency Figure 8.1(B) 1. 2. 3. The chain of command is the line of authority that extends from the highest to the lowest levels of the organization. In the chart, connections shown as broken lines are not part of the direct chain of command; these people hold advisory, or staff, positions. Most smaller organizations find organization charts useful. For two reasons, however, many large organizations do not maintain complete, detailed charts. Transparency 8.E(A), Transparency 8.E(B) a) II. It is difficult to chart accurately even a few dozen positions, much less the thousands that characterize larger firms. b) Larger organizations are almost always changing. C. Five Steps for Organizing a Business 1. Divide the work that is to be done by the entire organization into separate parts, and assign those parts to positions within the organization. This step is sometimes called “job design.” 2. Group the various positions into manageable units, or departments. This step is called “departmentalization.” 3. Distribute responsibility and authority. This step is called “delegation.” 4. Determine the number of subordinates who will report to each manager. This step creates the firm’s span of management. 5. Establish the organization’s chain of command by designating the positions with direct authority and those that are support positions. JOB DESIGN A. Job Specialization. Job specialization is the separation of all organizational activities into distinct tasks and the assignment of different tasks to different people. Transparency 8.B B. The Rationale for Specialization. There are several reasons why at least some specialization is needed. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization 5 The “job” of most organizations is simply too large for one person to handle. When a worker has to learn only a specific, highly specialized task, that individual should be able to learn to do it very efficiently. 3. The worker who is doing the same job over and over does not lose time changing from one operation to another. 4. The more specialized the job, the easier it may be to design specialized equipment for those who do it. 5. The more specialized the job, the easier it is to train new employees when an employee quits or is absent from work. C. Alternatives to Job Specialization. Specialization can also have some negative consequences, most notably employee boredom and dissatisfaction. There are possible solutions to the problems caused by job specialization. 1. Job rotation is the systematic shifting of employees from one job to another. 2. It is also possible to use job enlargement and job enrichment—two topics discussed in Chapter 11—to provide solutions to the problems caused by job specialization. III. DEPARTMENTALIZATION A. Departmentalization is the process of grouping jobs into manageable units. Several departmentalization bases are commonly used. 1. 2. Video Segment 8.B Concept: Methods of Organizing (Time 3:39) B. C. By Function. Departmentalization by function groups jobs that relate to the same organizational activity. 1. Most smaller and newer organizations base their departmentalization on function. 2. The disadvantages of this method are that it can lead to slow decision making and that it tends to emphasize the department rather than the organization as a whole. By Product. Departmentalization by product groups all activities related to a particular good or service. Video Segment 8.C Concept: Departmentalization by Product (Time 3:42) D. E. F. By Location. Departmentalization by location groups all activities according to the defined geographic area in which they are performed. By Customer. Departmentalization by customer groups all activities according to the needs of various customer populations. Combinations of Bases. Few organizations exhibit only one departmentalization base. Many firms use several different bases within a single organization. (See Figure 8.2.) Transparency Figure 8.2 IV. DELEGATION, DECENTRALIZATION, AND CENTRALIZATION A. The third major step in the organizing process is to distribute power in the organization. Delegation assigns part of a manager’s work and power to other workers. B. Delegation of Authority 1. Steps in Delegation. Three steps are generally involved in the delegation process. (See Figure 8.3.) Transparency Figure 8.3 a) b) The manager must assign responsibility. Responsibility is the duty to do a job or perform a task. The manager must grant authority. Authority is the power, within the organization, to accomplish an assigned job or task. Copyright © Houghton Mifflin Company. All rights reserved. 6 Chapter 8: Creating a Flexible Organization c) 2. The manager must create accountability. Accountability is the obligation of a worker to accomplish an assigned job or task. Accountability is created, but it cannot be delegated. Barriers to Delegation. For several reasons, managers may be unwilling to delegate work. a) One reason is that the person who delegates remains accountable for the work. b) A manager fears that a subordinate will do the work so well that he or she will attract the notice of top management and become a threat to the manager. c) Some managers are so disorganized that they simply are not able to plan and assign work effectively. Talking Technology: How Does the Work Get Done at Motek? C. V. Decentralization of Authority. The general pattern of delegation throughout an organization determines the extent to which that organization is decentralized or centralized. 1. An organization in which management consciously attempts to spread authority widely in the lower organization levels is said to be a decentralized organization. 2. An organization that systematically works to concentrate authority at the upper levels is said to be a centralized organization. 3. A variety of factors can influence the extent to which a firm is decentralized. a) One factor is the external environment in which the firm operates. b) Another factor is the nature of the decision to be made. The riskier or the more important the decision, the greater the tendency to centralize decision making. c) A third factor is the ability of lower-level managers to make decisions. d) A firm that has traditionally practiced centralization is likely to maintain that centralization in the future, and vice versa. 4. In principle, neither decentralization nor centralization is right or wrong. What works for one organization may or may not work for another. THE SPAN OF MANAGEMENT Transparency 8.C A. B. The fourth major step of organizing a business is establishing span of management (or span of control), which is the number of workers who report directly to one manager. Wide and Narrow Spans of Control. A wide span of management exists when a manager has a large number of subordinates. A narrow span exists when the manager has only a few subordinates. Several factors determine the span that is better for a particular manager. (See Figure 8.4.) Transparency Figure 8.4 C. Organizational Height. Organizational height is the number of layers, or levels, of management in a firm. 1. The span of management plays a direct role in determining the height of the organization. a) If spans of management are wider, fewer levels are needed, and the organization is flat. b) If spans of management are generally narrow, more levels are needed, and the resulting organization is tall. Transparency 8.F 2. In a taller organization, administrative costs are higher because more managers are needed. Communication among levels may become distorted. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization 7 3. All managers in a flat organization may have to perform more administrative duties because there are fewer managers. VI. CHAIN OF COMMAND: LINE AND STAFF MANAGEMENT A. Establishing the chain of command is another step in organizing a business. 1. A line management position is part of the chain of command; a person makes decisions and gives orders to subordinates to achieve the goals of the organization. 2. A staff management position is created to provide support, advice, and expertise to someone in the chain of command. 3. Figure 8.5 illustrates both line and staff management positions. Transparency Figure 8.5 B. Line and Staff Positions Compared. Both line and staff managers are needed for effective management, but there are important differences between the two kinds of positions. The basic difference concerns the terms of authority. Adapting to Change: Can Rightsizing the Organization Lead to Wrongsizing? 1. C. Line managers have line authority; they can make decisions and issue directives that relate to the organization’s goals. 2. Staff managers seldom have line authority but usually have either advisory authority or functional authority. a) Advisory authority is the expectation that line managers will consult the appropriate staff manager when making decisions. b) Functional authority is the authority of staff managers to make decisions and issue directives, but only about their own areas of expertise. Line-Staff Conflict. 1. Conflict between line and staff managers is fairly common in businesses. a) Staff managers often have more formal education and are sometimes younger (and perhaps more ambitious) than line managers. b) Line managers may perceive staff managers as a threat to their own authority, or they may resent them. c) Staff managers may become resentful if their expert recommendations are not adopted by line management. 2. There are several ways to minimize the likelihood of such conflict. a) Integrate line and staff managers into one team. b) Ensure that the areas of responsibility of line and staff managers are clearly defined. c) Line and staff managers can both be held accountable. 3. See Table 8.1 for a summary of the five characteristics of organizational structure. Copyright © Houghton Mifflin Company. All rights reserved. 8 Chapter 8: Creating a Flexible Organization VII. FORMS OF ORGANIZATIONAL STRUCTURE A. There are four basic forms of organizational structure: bureaucratic, matrix, cluster, and network. B. The Bureaucratic Structure. A bureaucratic structure is based on a formal framework of authority that is carefully outlined and precisely followed. A bureaucracy is likely to have the following characteristics: 1. A high level of job specialization 2. Departmentalization by function 3. Formal patterns of delegation 4. A high degree of centralization 5. Narrow spans of management, resulting in a tall organization 6. Clearly defined line and staff positions, with formal relationships between the two C. The Matrix Structure. The matrix structure combines vertical and horizontal lines of authority. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization 1. 2. 3. 4. 9 The matrix structure occurs when product departmentalization is superimposed on a functionally departmentalized organization. Authority flows both down and across. In a matrix structure, people from different departments are assigned to a group, called a cross-functional team, to work on a new project. a) Frequently, cross-functional teams are charged with developing new products. b) The manager in charge of the team is called the project manager. c) Cross-functional teams may be temporary or permanent. Figure 8.6 illustrates a typical matrix organization. Transparency Figure 8.6 5. The matrix organization has several advantages. a) Added flexibility is probably the most obvious advantage. b) This structure can increase productivity, raise morale, and nurture creativity and innovation. c) Employees experience personal development by doing a variety of jobs. 6. The matrix organization also has several disadvantages. a) Having employees report to more than one supervisor can cause confusion about who has authority in various situations. b) Like committees, teams may take longer to resolve problems and issues than individuals working alone. c) Because more managers and support staff may be needed, a matrix structure may be more expensive to maintain than other forms of organizational structure. D. The Cluster Structure. A cluster structure is a type of business that consists primarily of teams with no or very few underlying departments; this type of structure is also called “team” or “collaborative.” 1. Team members work together until the project is finished, then they can be reassigned or stay intact, depending on their skills and the needs of the organization. 2. The operating unit is the team and remains relatively small. 3. The cluster organizational structure has many strengths. a) Small teams provide the firm with the flexibility necessary to change directions quickly, to try new techniques, and to explore new ideas. b) Some employees express concerns regarding job security and the increased amount of stress that arises due to the rapidly occurring changes. E. The Network Structure. In a network structure (sometimes called a virtual organization), administration is the primary function performed and other functions such as engineering, production, marketing, and finance are contracted out. 1. This type of organization has only a few permanent employees consisting of top management and a few hourly clerical workers. 2. Leased equipment and facilities are temporary, as well. 3. There is rather limited formal structure. 4. An obvious advantage is the flexibility that allows an organization to quickly adjust to changes. 5. Some of the challenges faced by managers include the following: a) Controlling the quality of work performed by other organizations b) Low morale and high turnover among hourly workers c) Vulnerability associated with relying on outside contractors VIII. ADDITIONAL FACTORS THAT INFLUENCE AN ORGANIZATION F. To get a “true picture” of the organizational structure for any huge organization, you need to consider the topics discussed in this section of the chapter. Copyright © Houghton Mifflin Company. All rights reserved. 10 Chapter 8: Creating a Flexible Organization G. H. I. Corporate Culture. A corporate culture is generally defined as the inner rites, rituals, heroes, and values of a firm. 1. Rituals that might seem silly to an outsider can have a powerful influence on how the employees of a particular organization think and act. 2. Corporate culture is generally thought to have a very strong influence on a firm’s performance over time. 3. Goffee and Jones have identified four types of corporate cultures. (See Figure 8.7.) a) Networked culture b) Mercenary culture c) Fragmented culture d) Communal culture 4. Some experts believe that cultural change is needed when the company’s environment is changing significantly, when the industry is becoming more competitive, when the company’s performance is mediocre, when the company is growing rapidly, or when the company is about to become a truly large organization. Intrapreneurship. An intrapreneur is an employee who takes responsibility for pushing an innovative idea, product, or process through the organization. An intrapreneur possesses the confidence and drive of an entrepreneur but is allowed to use organizational resources for idea development. Committees 1. Several types of committees can be used within an organizational structure. a) An ad hoc committee is created for a specific short-term purpose, such as reviewing the firm’s employee benefits plan. b) A standing committee is a relatively permanent committee charged with performing a recurring task. c) A task force is a committee established to investigate a major problem or pending decision. 2. Committees offer some advantages over individual action. a) Several members are able to bring more information and knowledge to the task at hand. b) Committees tend to make more accurate decisions and to transmit their results through the organization more effectively. 3. There are also disadvantages to using committees. a) Committee deliberations take much longer than individual action. b) Unnecessary compromise may take place within the committee. Exploring Business: Celebrity CEOs: Is It All About Me? J. K. Coordination Techniques. The purpose of coordinating organizational resources is to minimize duplication and maximize effectiveness. Several coordination techniques have proved useful. 1. One technique is to make use of the managerial hierarchy, which is the arrangement that provides increasing authority at higher levels of management. 2. Resources can also be coordinated through rules and procedures. 3. In complex situations, more sophisticated coordination techniques may be called for. a) One approach is to establish a liaison—a person who coordinates the activities of two groups. b) For very complex organization needs, a committee could be established. The Informal Organization. Informal organization describes the pattern of behavior and interaction that stems from personal rather than official relationships. 1. Informal Groups. An informal group is created by the group members themselves to accomplish goals that may or may not be relevant to the organization. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization 11 a) 2. Employees join informal groups for a variety of reasons. (1) Perhaps the main reason is that people like to be with others who are similar to themselves. (2) The goals of the group appeal to the individual. (3) Some people have a need to be with their associates and be accepted by them. b) Informal groups can be powerful forces in organizations. Managers who fight the informal organization have a major obstacle to overcome. The Grapevine. The grapevine is the informal communications network within an organization. a) The grapevine is completely separate from—and sometimes much faster than— the organization’s formal channels of communication. b) Grapevine information can be highly accurate or totally distorted. c) Managers would make a mistake if they tried to eliminate the grapevine. A more rational approach is to recognize the existence of the grapevine as a part (though an unofficial part) of the organization. Video Segment 8.D Case: Organizing for Success at Bakers’ Best (Time 7:53) What People Are Saying Organizing the human asset is much like selecting the proper ingredients for a cake; not only must one select the proper combination and quantities of ingredients, but also one must select just the right temperature or climate that will allow the assets to rise and not burn. —Steven D. Johnson Copyright © Houghton Mifflin Company. All rights reserved. 12 Chapter 8: Creating a Flexible Organization RETURN TO INSIDE BUSINESS Nike Gets Organized 1. How does Nike’s women’s division serve as an alternative to job specialization? The women’s division focuses on multiple product lines rather than being restricted to only one. As a result, its employees escape the boredom and monotony of specializing in one product line, sport, or market segment. Employees are therefore more satisfied and motivated because of the variety in their work. 2. What is Nike doing to encourage intrapreneurship on the departmental level? When Nike created the ACG department to develop and market “all-conditions gear” for participants in extreme sports, it put the department in a separate building and gave managers the authority to come up with their own budget, organization chart, and marketing strategy. In addition, many designers of the department’s designers worked in Southern California so they would have closer contact with the skateboarding culture. These steps encouraged department personnel to act intrapreneurially in taking new product ideas from concept to commercialization without being slowed or influenced by the rest of the organization. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization 13 REVIEW QUESTIONS 1. In what way do organization charts create a picture of an organization? Organization charts are diagrams that represent positions in the organization and the relationships among them. They also illustrate the five steps in the organizing process: specialization, departmentalization, centralization, span of management, and chain of command. 2. What is the chain of command in an organization? The chain of command is the line of authority that extends from the highest to the lowest levels of the organization. 3. What determines the degree of specialization within an organization? The degree of specialization within an organization is determined through division of the entire organization’s work into separate parts and assignment of those parts to positions within the organization. 4. Describe how job rotation can be used to combat the problems caused by job specialization. In job rotation, each employee is shifted periodically to a different job. The idea behind job rotation is to provide a variety of tasks so that workers are less likely to get bored and dissatisfied. 5. What are the major differences among the four departmentalization bases? The four most common bases of departmentalization are by function, by product, by location, and by type of customers. Departmentalization by function groups jobs that relate to the same organizational activity. Departmentalization by product groups activities related to a particular good or service. Departmentalization by location groups activities according to the defined geographic area in which they are performed. Departmentalization by customer groups activities according to the needs of various customer populations. 6. Why do most firms employ a combination of departmentalization bases? A departmentalization base is the scheme by which jobs are grouped into units. In fact, few organizations exhibit only one departmentalization base. The most common bases are function, product, location, and customer. The decision to use multiple bases is usually based on the specific needs of the corporation and on the determination of which combination of bases will enable the organization to accomplish its goals and objectives. 7. What three steps are involved in delegation? Explain each. The three steps involved in delegation are (1) assigning responsibility, which is the duty to perform the job or task; (2) granting authority, which is the power within the organization to accomplish the task or job; and (3) creating accountability, which is the obligation of a subordinate to accomplish an assigned task or job. 8. How does a firm’s top management influence its degree of centralization? If top management consciously attempts to spread authority widely to the lower levels of management, the firm is decentralized. If top management works to keep authority at the upper levels, the firm is centralized. 9. How is organizational height related to the span of management? If the span of management is generally narrow, more levels of management are needed, resulting in a tall organization. If the span of management is wider, fewer levels are needed and the organization is flat. Copyright © Houghton Mifflin Company. All rights reserved. 14 Chapter 8: Creating a Flexible Organization 10. What are the key differences between line and staff positions? Line managers have line authority, meaning they can make decisions and issue directives that relate to the organization’s goals. Staff managers, by contrast, generally have either advisory or functional authority. 11. Contrast the bureaucratic and matrix forms of organizational structure. The bureaucratic structure is characterized by a. A high level of job specialization b. Departmentalization by function c. Formal patterns of delegation d. A high degree of centralization e. Narrow spans of management, resulting in a tall organization f. Clearly defined line and staff positions, with formal relationships between the two The matrix structure features a. Vertical and horizontal lines of authority b. Departmentalization superimposed on a functionally departmentalized organization c. Workers report to more than one supervisor at a time d. Cross-functional teams that include project managers 12. What are the differences between the cluster structure and the network structure? A cluster structure is a type of business that consists primarily of teams—which are the operating unit, so they are usually small—with no or very few underlying departments (also called “team” or “collaborative”). Team members work together until the project is complete, and then either move on or remain intact, depending on their skills and the needs of the organization. In a network structure (sometimes called a virtual organization), administration is the primary function performed. Other functions, such as engineering, production, marketing, and finance, are contracted out. The network structure has only a few permanent employees consisting of top management and a few hourly clerical workers. Even the facilities and equipment are temporary. 13. What is corporate culture? Describe the major types. Corporate culture is generally defined as the inner rites, rituals, heroes, and values of a firm. It can have a powerful influence on how its employees think and act, as well as determine how the public perceives the organization. There are four distinct types of corporate culture: a. Networked culture is a relaxed and informal environment. There is a strong commitment and a feeling of loyalty to the organization, characterized by a base of trust and friendship among employees. b. In the mercenary culture, employees are very intense, focused, and determined to win. In addition to employees working to earn money, feelings of passion, energy, sense of purpose, and excitement for one’s work play a large role in motivating an organization’s employees. c. Fragmented culture suggests that employees do not necessarily become friends but have a high degree of autonomy, flexibility, and equality. Employees in this type of culture consider themselves as working “at” the organization, not “for” it. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization d. 15 In the communal culture, the positive traits of the networked culture and the mercenary culture are combined. Traits such as friendship, commitment, high focus on performance, and high energy contribute to the organization resulting in an environment where success by anyone is celebrated by all. 14. Which form of organizational structure probably would lead to the strongest informal organization? Why? The bureaucratic form of organization would probably lead to the strongest informal organization, because it groups people with other employees who are similar to them. 15. How may the managerial hierarchy be used to coordinate the organization’s resources? One technique for coordinating organizational resources is to use the managerial hierarchy, which is the arrangement that provides increasing authority at higher levels of management. One manager is in charge of all the resources that need to be coordinated. That person is then able to coordinate those resources by virtue of the authority accompanying his or her position. Copyright © Houghton Mifflin Company. All rights reserved. 16 Chapter 8: Creating a Flexible Organization DISCUSSION QUESTIONS 1. Explain how the five steps of the organizing process determine the characteristics of the resulting organization. Which steps are most important? The first step in determining the dimension of an organization’s structure is to divide the entire organization’s work into separate parts and to assign those parts to positions within the organization. This step is sometimes called job design. The second step is to group various positions into manageable units. This dimension is called departmentalization. The third step is to distribute responsibility and authority within the organization. This dimension is called delegation. The fourth step is to determine the number of subordinates who will report to each manager. This dimension is called the span of management. The last step is to distinguish between those positions whose occupants have direct authority and those that are support positions. This dimension is called the chain of command. Each of the five steps is important in light of the complexity of managing an organization today. 2. Which kinds of firms would probably operate most effectively as centralized firms? As decentralized firms? Production firms would probably operate most effectively as centralized firms because the degree of specialized technical knowledge required is usually limited. Research firms, by contrast, need to be decentralized because of the great degree and variety of specialized knowledge required to do the job in such firms. 3. How do decisions concerning span of management, the use of committees, and coordination techniques affect organizational structure? Decisions concerning span of management and the use of committees and coordination techniques affect basic organizational structure by altering chains of command, delegation chains, individual authorities, accountabilities, and so on. 4. How might a manager go about formalizing the informal organization? A manager can formalize the informal organization by officially recognizing its presence and structure. He or she can also rewrite the informal organization chart to more closely approximate the formal organization. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization 17 COMMENTS ON VIDEO CASE 8 Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide. Organizing for Success at Bakers’ Best 1. What type of departmentalization basis is Bakers’ Best using? Explain your answer. Bakers’ Best uses departmentalization by customer to organize its business units. Each separate unit (restaurant, café, full-service catering, and corporate catering) maintains its own managers, employees, and reporting structure. Some students may argue persuasively that Bakers’ Best is using departmentalization by function because departmentalization by function is used within each business unit. 2. Why would an entrepreneur have difficulty learning to delegate authority as a small business grows bigger? When a small business is young, the entrepreneur may make every decision and directly supervise the employees who handle every task (creating a flat organization with a wide span of control). As the small business grows, it is impractical for the entrepreneur to make every decision, large or small, and directly supervise the increasingly large work force. Yet entrepreneurs may have little experience delegating authority and may want to hold the reins tightly because of their personal stake and interest in the business. They may have difficulty simply getting out of the habit of making decisions and managing every employee. Entrepreneurs may believe that because they are responsible for everything that happens in the business, they are reluctant to give anyone much authority. Ask students to discuss the consequences for the business, the employees, and the entrepreneur. 3. Why would a very small business, such as the early Bakers’ Best, have little need for staff positions? When a business is extremely small, the entrepreneur personally handles most decisions and tasks and neither requires nor wants to pay for support or advice from people in staff positions. In fact, entrepreneurs frequently pay outside experts (such as accountants and lawyers) to offer advice on an as-needed basis rather than hiring staff members. As the business grows, however, situations requiring specialized knowledge and advice come up more often. Soon the business will hire managers for human resources positions and other management slots. Copyright © Houghton Mifflin Company. All rights reserved. 18 Chapter 8: Creating a Flexible Organization BUILDING SKILLS FOR CAREER SUCCESS 1. Exploring the Internet Suggestions for using each Exploring the Internet exercise are contained on the Houghton Mifflin website for Pride/Hughes/Kapoor. By using a website, we can replace outdated material with the most up-to-date material available. For more information visit the Business site at Houghton Mifflin’s College Division home page at http://college.hmco.com/business/instructors/. 2. Developing Critical Thinking Skills Factors that influence the cultural environment within a company include the attitudes and beliefs of employees; the decision-making process; the communications system; the reward and promotion program; the organizational structure; rules, regulations, and policies; ethnic diversity; risk taking; the training program; and dress and behaviors of employees. To improve a company’s cultural environment, the employees must understand and support the mission of the company. The mission sets the priorities, determines values, and influences decisions. Employee behavior must be consistent with the mission. The communication system must provide the proper flow of information to the sources where it is needed. Managers must be examples that reflect the desired culture. Skills must be continually upgraded, if employees are expected to perform at certain levels. Changes in technology and in the industry can impact companies and reflect in their cultural environment. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization 3. Building Team Skills The organization chart is bureaucratic. There are three staff positions: one Payroll and Billing position and two Appointment Coordinators. The other positions are line positions. In this organization the span of control ranges from 0 to 7 people. The executive vice-president works with builders to establish their programs and provides the center managers with training, guidelines, and expectations. It is the responsibility of the managers to run their centers in a courteous and profitable manner. Copyright © Houghton Mifflin Company. All rights reserved. 19 20 4. Chapter 8: Creating a Flexible Organization Researching Different Careers The answers will vary. Emphasize that honesty is important in completing the assessment. Nothing changes unless a plan is prepared to improve weaknesses. Possessing excellent skills, knowing how to network, understanding one’s accomplishments, and having a positive attitude are key factors in being promoted within a company, as well as in being hired to fill a better position with another company. 5. Improving Communication Skills Managers cannot do everything themselves; to succeed they must delegate. To delegate more, managers must first learn to trust subordinates. They must learn what to delegate, then select capable and willing people to carry out the jobs. Managers must become familiar with the skills and abilities of each subordinate, and assign only work that employees are trained to do. If work beyond their capabilities is delegated, the employees will fail. The importance of the job, the expectations, and deadlines must be explained. Allow employees to make decisions about how to do the job. Delegate only complete jobs, not bits and pieces. Proper authority must accompany the delegation. Offer to help employees and coach them when necessary. Accept only finished work and give credit for successfully completing jobs. Managers are accountable for all work completed by subordinates, as well as by themselves. Follow up is necessary for successful delegation. Some managers fail to delegate because they are perfectionists and want to be sure the work gets done properly. Others do not delegate because they fear it takes too much time. If employees do a good job, it might reflect poorly on them. Some managers are too disorganized to delegate, or they believe their staff is not up to the job. Other managers simply do not understand the delegation process. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization QUIZ I True-False Questions Select the correct answer. 1. T F The step that distributes responsibility and authority within an organization is called delegation. 2. T F Job specialization is the systematic shifting of employees from one job to another. 3. T F The obligation of a worker to accomplish an assigned job or task is called accountability. 4. T F Span of management and span of control are synonymous terms. 5. T F There are fewer conflicts when the areas of responsibility for line managers and staff managers are clearly defined. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. The line of authority extending from the top to the bottom of the organization is known as the a. b. c. d. e. 7. In his book, The Wealth of Nations, __________ emphasized the power of specialization. a. b. c. d. e. 8. Karl Marx Victor Vroom George Washington Adam Smith Frederick Taylor Grouping all jobs related to the same organizational activity is departmentalization by a. b. c. d. e. 9. informal organization. cluster structure. bureaucratic structure. chain of command. matrix structure. function. employee. location. customer. product. The act of distributing part of a manager’s work and power to workers is called a. b. c. d. e. departmentalization. organizing. delegation. decentralization. job sharing. Copyright © Houghton Mifflin Company. All rights reserved. 21 22 Chapter 8: Creating a Flexible Organization 10. When authority is spread to lower-level management, a business is said to be a. b. c. d. e. centralized. decentralized. progressive. tall. upwardly mobile. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization 23 QUIZ II True-False Questions Select the correct answer. 1. T F The span of management is the number of subordinates who will report to each manager. 2. T F There seems to be a movement from variety in jobs to more specialization. 3. T F Most small and new organizations base departmentalization on customers. 4. T F When a manager has many subordinates, a wide span of management exists. 5. T F Staff managers usually provide support, advice, and expertise to line managers. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. Two or more people working together in a predetermined way to achieve common goals is known as a(n) a. b. c. d. e. 7. All of the following are reasons for job specialization except that a. b. c. d. e. 8. boredom from repetition is eliminated. special equipment can be produced to do a specific job. most jobs are too large for one person to handle. a specialized job can be efficiently learned. there is no loss of time by switching from one operation to another. Employees at a chemical factory are systematically moved every two weeks among three different departments in the organization. This is called a. b. c. d. e. 9. organization. chain of command. structure. enterprise. functional arrangement. job trading. specialization. departmentalization by function. job enlargement. job rotation. All of the following are departmentalization bases except a. b. c. d. e. function. product. location. customer. employee. Copyright © Houghton Mifflin Company. All rights reserved. 24 Chapter 8: Creating a Flexible Organization 10. A subordinate’s obligation to accomplish an assigned job is called a. b. c. d. e. accountability. responsibility. job requirements. delegation. authority. Copyright © Houghton Mifflin Company. All rights reserved. Chapter 8: Creating a Flexible Organization ANSWER KEY FOR QUIZZES Quiz I True-False 1. T 2. F 3. T 4. T 5. T Multiple-Choice 6. d 7. d 8. a 9. c 10. b Quiz II True-False 1. T 2. F 3. F 4. T 5. T Multiple-Choice 6. a 7. a 8. e 9. e 10. a CLASS EXERCISE—TRANSPARENCY 8.B 1. Job specialization can be efficient and time saving. 2. Disadvantages include worker boredom and redundancy. 3. Job specialization is effective when tasks are routine and repetitive. Copyright © Houghton Mifflin Company. All rights reserved. 25 26 4. Chapter 8: Creating a Flexible Organization Jobs where workers are encouraged to be creative do not lend themselves to job specialization. CHAPTER QUIZ—TRANSPARENCY 8.D 1. e 2. b 3. b 4. a 5. d Copyright © Houghton Mifflin Company. All rights reserved.