Chapter Seven
Creating a Flexible
Organization
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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 the organization.
6. Understand how the chain of command is
established by using line and staff
management.
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Learning Objectives
7. Describe the four basic forms of
organizational structure: bureaucratic,
matrix, cluster, and network team.
8. Summarize the use of corporate culture,
intrapreneurship, committees, coordination
techniques, informal groups, and the
grapevine.
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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 representation of the positions and relationships in
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
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A Typical Corporate Organization Chart
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Five Steps to Organizing a Business
1. Job design
•
Divide the work into separate parts and assign those
parts to positions
2. Departmentalization
•
Group the positions into manageable units
3. Delegation
•
Distribute responsibility and authority
4. Span of management
•
Determine the number of subordinates who will report to
each manager
5. Chain of command
•
Designate the positions with direct authority and those
that are support positions
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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
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Class Exercise
•
Job specialization is the separation of all
organizational activities into distinct tasks
and the assignment of different tasks to
different people.
1. What are the advantages of job
specialization?
2. What are the disadvantages of job
specialization?
3. What types of jobs lend themselves to
specialization?
4. What types of jobs do not lend themselves to
specialization?
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Job Design
• Alternatives to job specialization
– Job rotation
• The systematic shifting of employees from one
job to another to reduce boredom and
dissatisfaction
– Job enlargement
• Adding tasks to a job to increase the variety of
a worker’s activities
– Job enrichment
• Increasing the autonomy (self-governing)
workers have in deciding how to do their jobs
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Types of Firms Using
Job Rotation by Industry
Services
Business & Finance
Transportation/ Communication
Wholesale/Retail
Construction
Manufacturing
0%
10%
Hourly Paid
20%
30%
40%
50%
Salaried
Source: Tor Eriksson & Jaime Ortega, The Adoption of Job Rotation: Testing the Theories, May 26, 2004, http://www.hha.dk/nat/wper/04-3_tor.pdf
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Percentage of Firms Using
Job Rotation by Industry
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
<50
51-100
101-350
351-500
501+
Hourly Paid Employees
Salaried Employees
Source: Tor Eriksson & Jaime Ortega, The Adoption of Job Rotation: Testing the Theories, May 26, 2004, http://www.hha.dk/nat/wper/04-3_tor.pdf
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Departmentalization
• Grouping jobs into manageable units
• Common bases for departmentalization
–
–
–
–
–
By function
By product
By location
By customer
Combinations
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Departmentalization by Function
CEO
Finance
Marketing
Operations
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Departmentalization by Product
CEO
Computers
Printers
Software
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Departmentalization by Location
CEO
U.S. Region
European
Region
Asian
Region
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Departmentalization by Customer
CEO
Home
Users
Business
Users
Educational
Users
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Delegation, Decentralization, and
Centralization
• Delegation
– Assigning part of a manager’s work and power to
other workers
– Responsibility
• The duty to do a job or perform a task
– Authority
• The power within the organization to accomplish
an assigned task.
– Accountability
• The obligation to accomplish an assigned job or
task
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Steps in the Delegation Process
• The manager
assigns
responsibility
• The subordinate is
empowered to do the
task
• Ultimate
accountability
remains with the
manager
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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
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The Span of Management
• Wide and narrow spans of control
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The Span of Management
• Organizational height
– 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
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Debate Issue: Should Firms Use Downsizing
When Employees Are No Longer Needed?
YES
• Downsizing can lead to
quicker decision making,
precise accountability, and
harder-working
employees.
• Downsizing can
significantly reduce a firm’s
salary expense when
unneeded employees are
terminated.
NO
• Employees are needed to
perform their jobs or they
wouldn’t have been hired
in the first place.
• Downsizing is expensive
because most companies
must make severance
payments and fund
retirement plans.
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Chain of Command:
Line and Staff Management
• Line management position
– A position that is part of the chain of command;
includes direct responsibility for achieving the goals of
the organization
• Line authority—the authority line managers have to make
decisions and issue directives related to organizational
goals
• Staff management position
– A position created to provide support, advice, and
expertise within an organization
• Advisory authority—the expectation that line managers
will consult with staff managers before making decisions
• Functional authority—staff managers’ authority to make
decisions and issues directives within their area of
expertise
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Line and Staff Management
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Line-Staff Conflict
• Reasons for conflict
– 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
– Integrate line and staff managers into one team
– Ensure that responsibilities are clearly defined
– Hold both line and staff managers accountable for
results
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Forms of Organizational Structure
•
Bureaucratic structure
– A management system based on a formal framework of authority
that is carefully outlined and precisely followed
– 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
– Advantages
• Inflexibility helps ensure fair and equitable treatment
– Disadvantages
• Inflexibility creates problems in adapting to dynamic business
environments
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Forms of Organizational Structure
• 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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A Matrix Structure
Source: Ricky W. Griffin, Management, 9th ed. Copyright © 2008 by Houghton Mifflin Company. Adapted with permission.
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The Matrix Structure
Advantages
Disadvantages
Added flexibility
Increased productivity
Higher morale
Increases in creativity and
innovation
• Personal development of team
members
• 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
•
•
•
•
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Forms of Organizational Structure
• Cluster structure
– An organization that consists primarily of teams with no
or very few underlying departments
– Also called “team” or “collaborative” structures
– Teams may move on to other projects or individual
members may be reassigned to different teams and
projects
– Strengths
• Small teams allows for flexibility to change direction
quickly and try new things
– Weaknesses
• Employees may be concerned about job security
• Increased stress due to rapid changes
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Forms of Organizational Structure
• Network structure (virtual organization)
– An organization in which administration is the
primary function performed and most other
functions such as engineering, production, and
marketing 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
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Additional Factors That Influence
an Organization
• 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)
– Cultural change is needed when
• The business environment changes
• Company performance is mediocre
• The company is growing or becomes a large firm
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Additional Factors That Influence
an Organization
• Intrapreneurship
– Intrapreneur—an employee who pushes an
innovative idea, product, or process
through the organization while using the
organization’s resources for idea development
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Elements Needed to Develop
Successful Intrapreneurs
 Encouragement by management and
organization
 Individual motivation
 Transparency, openness and communality
 Individual competence
 Enabling working environment
 Encouragement to innovations
 Development
Source: J. Heinonen and K. Korvela, “How About Measuring Intrapreneurship,” Turku School of Economics and Business Administration, 2003,
http://www.tukkk.fi/pki/julkaisut/konferenssit/EISB2003/Heinonen_Korvela_EISB2003.pdf#search=%22data%20%20%22intrapreneurship%22%
20-edu%22
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Additional Factors That Influence
an Organization
• 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
– Positive aspects
• Members bring more information and knowledge; more
accurate decisions; results communicated more
effectively
– Negative aspects
• Decisions making takes longer; may reach unnecessary
compromises; one person may dominate
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Additional Factors That Influence
an Organization
• Coordination techniques
– Managerial hierarchy
• The arrangement that provides for increasing
authority at higher levels of management
– Rules and procedures
– Liaison to coordinate the
activities of groups
– Committee to integrate
complex coordination
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Additional Factors That Influence
an Organization
• Informal organization
– Patterns of behavior and interactions that stem from
personal, rather than official, relationships in the
organization
– Informal groups
• Formed by the members themselves to accomplish goals
that may or may not be relevant to the organization
• Reasons for joining: the need for affiliation; agreement
with the goals of the group; desire to be accepted
– 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
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Chapter Quiz
1. Solid vertical lines on an organization chart indicate
relationships among
a) staff positions.
b) employees.
c) delegated positions.
d) the chain of command.
e) line and staff positions.
2. The systematic shifting of employees from one job
to another is called job
a) specialization.
b) rotation.
c) sharing.
d) enlargement.
e) enrichment.
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Chapter Quiz
3. Grouping all activities according to the geographic
area in which they are located is departmentalization
by
a) function.
b) employee.
c) product.
d) customer.
e) location.
4. In a ______ organization, administrative costs are
higher because more managers are needed.
a) long
b) flat
c) tall
d) short
e) broad
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Chapter Quiz
5. The power to accomplish an assigned job is called
a) authority.
b) accountability.
c) responsibility.
d) delegation.
e) obligation.
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Answers to Chapter Quiz
1. Solid vertical lines on an organization chart indicate
relationships among
a) staff positions.
b) employees.
c) delegated positions.
d) the chain of command.(Correct)
e) line and staff positions.
2. The systematic shifting of employees from one job
to another is called job
a) specialization.
b) rotation. (Correct)
c) sharing.
d) enlargement.
e) enrichment.
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Answers to Chapter Quiz
3. Grouping all activities according to the geographic
area in which they are located is departmentalization
by
a) function.
b) employee.
c) product.
d) customer.
e) location. (Correct)
4. In a __________ organization, administrative costs
are higher because more managers are needed.
a) long
b) flat
c) tall (Correct)
d) short
e) broad
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Answers to Chapter Quiz
5. The power to accomplish an assigned job is called
a) authority. (Correct)
b) accountability.
c) responsibility.
d) delegation.
e) obligation.
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