4. Organization structure and management

Business Structuring

Process of organizing resources, tasks and authority within a business

Henri Fayol

Management theorist who introduced key principles of organization

Principles of Organization

Guidelines for structuring and managing organizations effectively

Fayol's Principles of Organization

1. Unity of Command

2. Hierarchy of Authority

3. Division of Labor

4. Subordination of Individual Interests

5. Degree of Centralization

6. Clear Communication Channels

7. Order

8. Equity

9. Esprit de Corp

Unity of Command

Each employee reports to only one manager

Hierarchy of Authority

Managers have the right to give orders and expect compliance

Division of Labor

Work is divided into specialized tasks and functions

Subordination of Individual Interests

Organizational goals take priority over personal interests

Degree of Centralization

Extent to which decision-making is concentrated at top management

Clear Communication Channels

Information follows established reporting lines

Order

People and materials are placed in proper locations

Equity

Employees are treated fairly and with respect

Esprit de Corps

Spirit of loyalty, teamwork and unity among employees

Max Weber

Management theorist who promoted bureaucracy and formal organizational structures

Job Description

Written explanation of duties and responsibilities of a position

Bureaucracy

Organization with many management layers, formal rules and procedures

Hierarchy

System with ranked levels of authority from top to bottom

Chain of Command

Line of authority from top management to lower levels

Organization Chart

Diagram showing reporting relationships within an organization

Building an Organization

1. Create Division of Labor

2. Divide Tasks Through Job Specialization

3. Set Up Departments

4. Allocate Resources

5. Assign Specific Tasks

6. Establish Procedures

7. Develop an Organization Chart

8. Adjust to New Realities

Job Specialization

Process of dividing work into smaller specialized tasks

Centralized Authority

Decision-making power remains at top management

Decentralized Authority

Decision-making power is delegated to lower-level managers

Span of Control

Number of employees supervised by one manager

Wide Span of Control

Manager supervises many employees

Narrow Span of Control

Manager supervises fewer employees and provides closer supervision

Tall Organizational Structure

Structure with many management levels

Flat Organizational Structure

Structure with few management levels and broad span of control

Departmentalization

Dividing organizational activities into separate departments

Types of Departmentalization

1. Product

2. Function

3. Customer Group

4. Geographic Location

5. Process

Product Departmentalization

Departments are organized around products

Functional Departmentalization

Departments are organized by business functions

Customer Departmentalization

Departments are organized around customer groups

Geographic Departmentalization

Departments are organized by location

Process Departmentalization

Departments are organized by stages of production

Advantages of Departmentalization

1. Skill Development

2. Economies of Scale

3. Better Coordination Within Functions

4. Easier Management Direction

Disadvantages of Departmentalization

1. Poor Communication Between Departments

2. Department Goals May Override Organizational Goals

3. Slow Response to External Changes

4. Employee Overspecialization

Restructuring

Redesigning an organization to improve effectiveness and efficiency

Inverted Organizational Structure

Structure where managers support frontline employees instead of controlling them

Matrix Organization

Structure where specialists from different departments work together on projects

Advantages of Matrix Organization

1. Flexible Use of Employees

2. Improved Teamwork

3. Creative Problem Solving

4. Efficient Use of Resources

Disadvantages of Matrix Organization

1. Costly and Complex

2. Confusing Reporting Relationships

3. Requires Strong Cooperation Skills

4. May Be Temporary Solution

Virtual Corporation

Organization focusing on core competencies while outsourcing other functions

Core Competencies

Activities a company performs better than competitors

Joint Venture

Business arrangement where organizations work together on a project

Outsourcing

Hiring external organizations to perform business activities

Subcontracting

Contracting part of work to another business

Knowledge Worker

Professional whose main contribution is specialized knowledge and expertise