CHAPTER OBJECTIVES
After studying this chapter and the case exercises at the end, you should be able to:
1. Develop an organization chart for a company.
2. Draw the company’s current organization chart, and list its pros and cons.
3. Show how a company could install a network organization.
4. Reorganize a company’s tasks around a “horizontal organization.”
LECTURE OUTLINE
The Management Challenge
Introduction
What Is Organizing?
From Planning to Organizing
Authority and the Chain of Command
Line and Staff Authority
The Informal Organization
Departmentalization: Creating Departments
Organizing Departments by Functions
Organizing Departments by Self-Contained Divisions/Purposes: Products
Organizing Departments by Self-Contained Divisions/Purposes: Customers
Organizing Departments by Self-Contained Divisions/Purposes: Marketing Channels
Organizing Departments by Self-Contained Divisions/Purposes: Geographic Area
Advantages and Disadvantages of the Divisional Approach
Creating Matrix Organizations
Departmentalization in Practice: A Hybrid
Tall and Flat Organizations and the Span of Control
The Span of Control
Tall vs. Flat Organizations
Network-Based Organizations
Informal Networks
Formal Networks
Electronic Organizational Networks
Team-Based Organizations
Federal-Type Organizations
Virtual Organizations
Summary
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ANNOTATED OUTLINE
The Management Challenge
Starbucks is faced with the challenge of how to continuously organize, domestically and internationally, such that is can retain its innovativeness and competitiveness. This is no easy task for
Howard Schultz.
What is Organizing?
Organizing means arranging activities in such a way that they systematically contribute to the company’s goal.
From Planning to Organizing
Planning and organizing are inseparable. Strategy determines structure. The way an organization is structured is determined by its plan.
Authority and the Chain of Command
An organization chart depicts an organization, and shows the title of each manager’s position and by means of connecting lines, who is accountable to whom and who has authority for each area.
It also shows the chain of command between the top of the organization and the lowest positions on the chart. Authority refers to a personal right or power to take actions, to make decision, and to direct the work of others.
Line and Staff Authority
Line managers are always in charge of essential activities and are authorized to issue orders to subordinates. Staff managers generally cannot issue orders down the chain of command (except in their own departments), and can only assist and advise line managers. Functional authority means that a manager can issue orders down the chain of command within the narrow limits of his/her authority.
The Informal Organization
The informal organization is the informal, habitual contacts, communications, and ways of doing things employees develop.
Departmentalization: Creating Departments
Departmentalization is the process through which an organization’s activities are grouped and assigned to managers; it is the organization-wide division of work. Managers have two basic choices when it comes to organizing departments. They can organize departments around functions or divisions/purposes.
Organizing Departments by Functions
Functional departmentalization means grouping activities around basic functions like manufacturing, sales, and finance. There are advantages and disadvantages to functional departmentalization.
Advantages: simple, obvious, logical; promotes efficiency;
NOTES
Figure 6-1
Functional
Departmentalization
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simplifies executive hiring and training; facilitates the top manager’s control. Disadvantages: increases the coordination workload for the executive; reduces the firm’s sensitivity to and service to the customer; and produces fewer general managers.
Organizing Departments by Self-Contained Divisions/
Purposes: Products
Product departmentalization refers to the organizing of departments by the company’s products or services.
Divisio nalization exists when the firm’s major departments are organized so that each can manage all the activities needed to develop, manufacture, and sell a particular product, product line, or service.
Organizing Departments by Self-Contained Divisions/
Purposes: Customers
Customer departmentalization refers to the organizing of departments to serve the needs of specific customers. Customers can expect faster, better service. Disadvantage is duplication of effort.
Organizing Departments by Self-Contained Divisions/
Purposes: Marketing Channels
In marketing-channel departmentalization, top-level departments are organized around each of the firm’s marketing channels. A marketing channel is the conduit through which a manufacturer distributes its products to its ultimate customers. This approach differs from the customer approach in two ways: the marketing channels are conduits to the firm’s ultimate customers; and marketing channel departments usually market the same product through two or more channels. Managers use this structure when it’s important to cater to each marketing channel’s unique needs.
Organizing Departments by Self-Contained Divisions/
Purposes: Geographic Area
Geographic or territorial departmentalization occurs when departments are organized for each of the territories in which the organization does business. Can help ensure quick, responsive reaction to the needs of the company’s clients. However, may also duplicate efforts, and isolate one territory from another.
Management in Action
Heinz, P&G, and the INS
Managing at the Speed of Thought
Using the Internet for Global Communications
Advantages and Disadvantages of the Divisional Approach
Divisionalization advantageous because: the product or service gets the single-minded attention of its own general manager and unit, and so its customers may get better, more responsive,
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Figure 6-5
Divisional Organization
Facilitate Coordination
Figure 6-2
Divisional Organization for
Pharmaceuticals Company
Figure 6-3
Customer
Departmentalization,
Grayson Steel Company
Figure 6-4
Marketing Channel
Departmentalization

service; it’s easier to judge performance; it develops general managers; and it reduces the burden for the company’s CEO.
Disadvantages: involves duplication of effort; it leads to diminished top management control; it requires more managers with general management abilities; and it can breed compartmentalization.
Creating Matrix Organizations
A matrix organization, or matrix management, is the superimposing of one or more forms of departmentalization on top of an existing one. Advantages to matrix organizations: gives employees the stability and benefits of belonging to permanent departments, and it gives the firm most of advantages of having units and employees focused on specific projects, products, or customers. Disadvantages: confusion, power struggles and conflicts, lost time, and excessive overhead.
Management in Action
Implementing Matrix Management at Texas Instruments
Departmentalization in Practice: A Hybrid
The use of several forms of departmentalization within an organization is considered a hybrid organization. Managers mix types of departmentalization for three reasons: hierarchical considerations, efficiency, common sense.
Management in Action
Rosenbluth International
Tall and Flat Organizations, and the Span of Control
The Span of Control
Span of control is the number of subordinates that report directly to a supervisor. The greater the span of control, the flatter the organization. The lower the span of control, the taller the organization.
Tall vs. Flat Organizations
Flat and tall organizations have to do with the levels of hierarchy within the organization. The more levels in the chain of command in the organization, the taller the organization. The fewer levels in the hierarchy, the flatter the organization. Consensus today that flat is better.
Management in Action
The GE Experience
Network-Based Organizations
An organizational network is a system of interconnected or cooperating individuals. Seven arrangements: informal, formal, and electronic organizational networks; team-based and horizontal organizations; and federal and virtual organizations.
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Figure 6-6
Matrix Organization
Departmentalization
Checklist 6.1
Functional vs. Divisional
Organizations
Figure 6-7
A Hybrid Organization
Figure 6-8
The New Summer Tour
Organization
Figure 6-9
Spans of Control in Country-
Based Organizations

Informal Networks
Informal networks consist of cooperating individuals who willingly share information and help solve each other’s problems, using the personal knowledge of each other’s expertise. Networks like these arise spontaneously, but firms today also nurture them.
Formal Networks
A formal organizational network is a recognized group of managers or other employees assembled by the CEO and the other senior executive team, drawn from across the company’s functions, business units, geography, and levels.
Management in Action
Conrail and Electrolux
Electronic Organizational Networks
Organizational electronic networking means networking through technology-supported devices. Electronic networking supports the firm’s formal and informal networks.
Team-Based Organizations
A team is a group of people who work together and share a common work objective. Teams are often self-managing and responsible for an entire body of work. In team-based organizations, teams are the basic work unit and do much of the planning and decision making. The result is a flat organization in which teams report to a relative handful of traditional managers.
Horizontal Corporations
Horizontal corporations are a type of team-based organization.
Team’s tasks cut across several business functions. The basic idea for organizing around horizontal teams is to have one tightly integrated multidisciplinary team work in unison on all the formerly discrete steps in the process.
Management in Action
Ryder Systems
Federal-Type Organizations
In federal organizations, the power is shared among a central authority and several independent units, and the central unit’s authority is intentionally limited.
Management in Action
TCG
Virtual Organizations
A virtual organization is a temporary network of independent companies linked by information technology to share skills, costs, and access to one another’s markets. They are networks of companies, each of which brings to the virtual corporation its
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Figure 6-10
How Networks Reshape
Organizations
Figure 6-11
The Horizontal Corporation
Checklist 6.2
Building Horizontal
Organizations
Figure 6-12
How to Create a Horizontal
Corporation
Figure 6-13
TCG’s Cellular Organizations

special expertise. Have two main features: their interdependence on a federation of alliances and partnerships with other organizations; and corporate self-interest, not authority, generally keeps everyone in line.
Management in Action
Indigo Partners
SUMMARY
1. Organizing means arranging an enterprise’s activities in such a way that they systematically contribute to the ent erprise’s goals. An organization consists of people whose specialized tasks are coordinated to contribute to the organization’s goals.
2. Authority is the right to take action, to make decisions, and to direct the work of others.
Managers usually distinguish between line and staff authority.
3. Departmentalization is the process through which management groups an enterprise’s activities together, and assigns them to managers. Managers group activities by functions, products, customer groups, marketing channels, or geographic areas.
4. A matrix organization —sometimes called matrix management—is an organization in which one or more forms of departmentalization are superimposed on an existing one. In practice, most enterprises are hybrids and use several forms of departmentalization.
5. Many companies are adopting flatter structures in an effort to eliminate duplication of effort, inspire creativity, and increase responsiveness. The span of control in a company is the number of subordinates reporting directly to a supervisor.
6. Many firms superimpose organizational networks over existing structures. A network is a system of interconnected or cooperating individuals. It can be formal or informal, and it can be electronically based. The basic idea is to link managers from various departments, levels, and geographic areas so that they form a multidisciplinary team whose members communicate across normal organizational boundaries. Team-based organizations, federal organizations, virtual organizations, and horizontal organizations are all networked organizations.
7. The horizontal corporation is a structure organized around basic processes such as newproduct development, sales fulfillment, and customer support. Everyone works together in multidisciplinary teams, with each team assigned to perform one or more of the processes.
8. Federal organizations are organizations in which power is distributed between a central unit and a number of a constituent units, but the central unit’s authority is intentionally limited. A virtual organization is a collection of independent enterprises tied together by contracts and other means, such as partial ownership arrangements.
KEY TERMS organizing 139 organization chart 139 chain of command 140 authority 140 line manager 140 staff manager 140 functional authority 140 informal organization 141 departmentalization 141 functional departmentalization 141 divisional 143 customer departmentalization 144
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marketing-channel departmentalization 144 marketing channel 144 matrix organization 148 span of control 154 organizational network 156 formal organizational network 157 team 158 horizontal corporation 159 federal organization 161
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