Class 11: Chapter 6 - Organizing

What is an organization?

A group of individuals who work together toward a common goal.

What are the different types of legal organizations?

• Sole proprietorship

• Partnership

• Limited Liability Company (LLC)

• Corporation

• Cooperatives

What is a sole proprietorship?

A business that is owned and operated by one person.

What are the pros of a sole proprietorship?

• It’s is simple to organize and shut down

• Has few legal restrictions

• The owner is free to make all decisions

• Profit is only taxed once

What are the cons to a sole proprietorship?

• The owner faced unlimited liability for the debts of the business

• May be difficult to raise capital to fund growth

• Duration of the business is limited to the life of the proprietor

What is a partnership?

An association of two or more partners to carry on as co-workers of a business for profit.

What are the pros of partnerships?

• Relatively easy to organize

• Has few legal restrictions

• Managerial skills, decision making abilities, and financial resources are combined

• Does not pay taxes - the partners do on their individual tax forms

What are cons of partnerships?

• Divided decision-making authority

• Potential damage to the business when partners disagree

• Unlimited liability for debt

What is a limited liability company (LLC)?

A business structure that protects it owners from personal liability for business debts.

What are the characteristics of LLC?

• Limited personal liability for the debts and actions

• No maximum number of members

• Provide management flexibility

• Pass-through taxation

• Income is taxed once

What are corporations?

Legal entities owned by shareholders, who have no liability beyond loss of the value of their stock.

What are the pros of corporations?

• Owned by founder and/or partners

• Civil liability limited to stock in corporation

• Have perpetual life

What are the cons of corporations?

• Difficult and expensive to organize

• Income is taxed twice: once as corporate income tax the year is made, and again as personal income tax when the after-tax profit is distributed as dividends

• Subject to many state and federal controls

What are cooperatives (co-ops)?

• A special type of organization owed by users and customers, to whom earnings are usually distributed tax-free in proportion to patronage.

• In order to purchase things, a membership is required

What are examples of co-ops?

• REI is the most well known co-ops

• Most commonly used in rural areas to handle distribution of farm products and electricity

How do cooperatives work?

Each member buys a share initially for a few dollars, and they can cast one vote to elect the board members who can manage it.

What must effective organizing consider?

The basic mission and long-range objectives established for the organization and the strategy conceived to accomplish them.

What are Peter Drucker’s three questions to help identify the key activities?

1. In what area is excellence required to achieve the company’s objectives?

2. In what areas would lack of performance endanger the results, if not the survival, of the enterprise?

3. What are the values that are truly important to us in this company?

What is a limited partnership?

At least one general partner with unlimited liability. The others have limited liability. (One partner is responsible for liabilities)

Ex) Your business has a corporate credit card and your buddy creates debt… you are now also in debt

In strategic planning, what are the keys to organization?

• Mission/Vision

• Long range objectives

• What assets are needed

• What knowledge is requred

To exist, an organization must incorporate what?

• Verifiable objects - planning

• Clear idea of duties and responsibilities

• Understand the direction of authority

• Supply quality information - communication

What is organizing?

• Identification/classification of the required activities

• Proper grouping of those activities

• Assignment of a manger to each activity

  • With authority to do or delegate (delegation = big duty)

• Horizontal and vertical integration (structure that interacts both ways)

Describe Hierarchical Organizations.

• Every entity (except 1) subject to a single other entity

• Most dominant type among large corporations

What is a pro to Hierarchical Design?

The shallow design allows communication to flow efficiently.

What are the patterns of Departmentation?

• Basic

• Functional

• Product

• Geographic

Describe basic organizational structure.

Everyone does everything

What is an example of basic organization?

What is functional departmentation?

Everyone has their own role and reports to one boss at the top/

What is an example of functional departmentation?

What is product departmentation?

A structure based on the product being produced.

What is an example of product departmentation?

What is geographic departmentation?

A structure based on geography of the company.

What is a example of geographic departmentation?

What is mixed departmentation?

A structure with a combination of product and geographical structures.

What is an example of mixed departmentation?

What is the “span of 4”?

• One top manager or CEO

• 4 high-level managers below the CEO

• 4 mid or low-level managers below the high-level manager

• Each mid or low-level manager will have 4 workers

What is the “span of 8”?

One CEO has 8 managers reporting to him/her

It could be the 8 managers have 8 more managers under them!

At the bottom, 8 workers report to some supervisor

What are factors that determine effective span?

• How well people are trained

• How well are people qualified to perform the job (need to look over shoulder)

• Perform routine activities or balance multiple projects

• Require staff assistance

What is the difference between something that has a small span vs. a large span?

A routine activity has less span whereas balancing multiple projects has more span.

What are current trends regarding span of control?

• Information Revolution facilitates increasing span

• 20 or more subordinates at any level

• No more than 5 levels at most

What are line staff?

Superior/Subordinate relationships typically represented vertically in organizational charts

What are administrative staff?

Advisory in nature, degree of influence may vary

– Provide advice on request

– Recommendations when appropriate

– Consulted by line but have no direct

authority over line

– May have concurring authority - veto

authority over line

What are service staff?

Centralized support functions

– Custodial/physical plant

– Security/Safety

– Medical

– IT/computers. Etc

How can an organization be structured?

• Can be deep top to bottom

• Wide across with many functions

• Layered as such

• Shallow top to bottom and

• Wide or narrow

• Too deep = slow communications and slow to act

• Too wide = too many functions to be coordinated

What are the 3 basic types of production organizations?

• Production

• Mass production

• Process production

Describe production organizations.

“job shop,” custom small batches, order-driven.

ex) local machine shop

Describe mass production organizations.

Auto assembly, furniture, air conditioners

Most common type

Ex) Apple, Tesla, Ford

Describe process production.

Continuous processing

Ex) refineries, cement plants, beer brewing

What is the definition of a team?

Small number of people who are committed to a common goal, objectives, and approach to the goal