BUS 100
Chapter 6
ORGANIZING
THE
BUSINESS
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6–1
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
1. Discuss the factors that influence a firm’s
organizational structure.
2. Explain specialization and departmentalization as two
of the building blocks of organizational structure.
3. Describe centralization and decentralization,
delegation, and authority as the key ingredients in
establishing the decision-making hierarchy.
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6–2
L E A R N I N G O B J E C T I V E S (cont’d)
After reading this chapter, you should be able to:
4. Explain the differences among functional, divisional,
matrix, and international organizational structures and
describe the most popular new forms of organizational
design.
5. Describe the informal organization and discuss
intrapreneuring.
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6–3
What’s in It for Me?
By understanding the material in this chapter,
you’ll also be prepared to:
 Understand your “place” in the organization that
employs you
 Be better equipped to create the optimal structure
for your own organization as a boss or owner
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6–4
What Is Organizational Structure?
Organizational Structure
 The specification of the jobs to be done within an
organization and the ways in which those jobs relate
to one another
Organization Charts
 Clarify structure and to show employees where they
fit into a firm’s operations
 Show the chain of command, or reporting
relationships, within a company
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6–5
FIGURE 6.1
The Organization Chart
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6–6
Determinants of
Organizational Structure
Mission
Strategy
Size
Internal Environment
External Environment
Organizational structure is usually quite fluid!
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6–7
The Building Blocks of
Organizational Structure
Specialization
 Division of work: job specialization
Departmentalization
 Product, process, functional, customer, or
geographic
Establishment of a decision making hierarchy
 Distributing authority:
Delegation: assigning tasks
 Centralization: upper management retains authority
 Decentralization: lower-level managers make decisions

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6–8
FIGURE 6.2
Multiple Forms of Departmentalization
Functional
Departmentalization
Geographical
Departmentalization
Product
Departmentalization
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Establishing the DecisionMaking Hierarchy
Centralized Organization
Top managers hold most
decision-making authority
Decentralized Organization
Lower-level managers hold
significant decision-making
authority
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6–10
Tall and Flat Organizations
Flat Organizational Structure
 Common in decentralized organizations
 Fewer layers of management
 Rapid communication
 Wide spans of control
Tall Organizational Structure
 Common in centralized organizations
 Multiple layers of management
 Slower communication
 Narrower spans of control
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6–11
The Delegation Process
Delegation
 The process through which a manager allocates
work to subordinates
Delegation Entails:
 Assignment of responsibility—the duty to perform
an assigned task
 Granting of authority—the power to make decisions
necessary to complete the task
 Creation of accountability—the obligation of
employees to successfully complete the task
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Why Managers Won’t Delegate
The fear that subordinates don’t really know
how to do the job
The desire to keep as much control as possible
over how things are done
The fear that a subordinate might “show the
manager up” in front of others by doing a
superb job
A simple lack of ability as to how to effectively
delegate to others
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6–13
Forms of Authority
Line Authority
 The type of operational authority that flows up and
down the chain of command
Staff Authority
 Authority based on special expertise and usually
involves counseling and advising line managers
Committee and Team Authority
 Authority granted to committees or work teams that
play central roles in the firm’s daily operations
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6–14
FIGURE 6.4
Line and Staff Organization
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Forms of Organizational Structure
Functional Structure
 Form of business organization in which authority is
determined by the relationships between group
functions and activities
 Used by most small to medium-sized firms
structured around basic business functions
(marketing, operations, finance)
 Advantages:

Specialization and smoother internal coordination
 Disadvantages:

Centralization, poor cross-functional coordination, and lack
of accountability
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6–16
FIGURE 6.5
Functional Structure
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6–17
Forms of Organizational Structure (cont’d)
Divisional Structure
 Based on departmentalization by product with each
division managed as a separate enterprise
 Organizations using this approach are typically
structured around several divisions—departments
that resemble separate businesses in that they
produce and market their own products
 Advantages:

Increased product-focus and internal coordination
 Disadvantages:

Duplication of efforts and competition between divisions
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6–18
FIGURE 6.6
Divisional Structure
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Forms of Organizational Structure (cont’d)
Matrix Structure
 Organized along two dimensions, instead of just
one, by combining, for example, functional and
divisional structures
 Advantages:

Highly flexible, focused on single problem, access to
resources and expertise
 Disadvantages:

Loss of command and control, lack of accountability,
impermanent existence
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6–20
FIGURE 6.7
Matrix Organization at Martha Stewart’s Omnimedia Inc.
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6–21
Forms of Organizational Structure (cont’d)
International Structures
 Developed in response to the need to manufacture,
purchase, and sell in global markets
 Department, division, or geographic
Global Structure
 Acquiring resources (including capital), producing
goods and services, engaging in research and
development, and selling products in whatever local
market is appropriate, without any consideration of
national boundaries
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6–22
FIGURE 6.8
International Division Structure
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Organizational Design
for the 21st Century
Team Organization
 Relies almost exclusively on project-type teams,
with little or no underlying functional hierarchy
Virtual Organization
 Has little or no formal structure, few permanent
employees, a very small staff, and a modest
administrative facility
Learning Organization
 Integrates continuous improvement and employee
learning and development while transforming itself
to respond to changing demands and needs
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6–24
FIGURE 6.9
The Virtual Organization
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Informal Organization
Informal Organization
 Everyday social interactions among employees that
transcend formal jobs and job interrelationships
 Advantages:

May reinforce the formal organization
 Disadvantages:
Can reinforce office politics that put the interests of
individuals ahead of those of the firm
 May communicate distorted or inaccurate information

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Informal Organization (cont’d)
Informal Groups
 Groups of people who decide to interact among
themselves, sometimes about business
Organizational Grapevine
 The informal communication network that runs
throughout the organization
Intrapreneuring
 Creating and maintaining the innovation and
flexibility of a small-business environment within the
confines of a large, bureaucratic structure
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6–27
KEY TERMS
accountability
authority
centralized organization
chain of command
committee and team authority
customer departmentalization
decentralized organization
delegation
departmentalization
division
divisional structure
flat organizational structure
functional departmentalization
functional structure
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geographic departmentalization
grapevine
informal organization
international organizational
structures
intrapreneuring
job specialization
line authority
line department
matrix structure
organization chart
organizational structure
process departmentalization
product departmentalization
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K E Y T E R M S (cont’d)
profit center
responsibility
span of control
staff authority
staff members
tall organizational structure
work team
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