COMM 1800

 Week 1

Business Basics

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• Organization: entity of group of individuals who work together in a structured manner to achieve a shared purpose or goal

  • Defined roles, responsibilities, and processes

  • Includes associations, institutions, non-profits, businesses

    • Ex. corporations, political parties, military, charities, universities

  • Effectiveness is often determined by ability to manage resources, coordinate activities, and adapt to changes in the environment to achieve its goals

• Types of organizations

  • Public sector: orgs set up and run by gov’t 15% of jobs

    • Owned by agencies, private sector is imperfect in providing for the needs of society, fills the gaps in education, roads, police, fire dept

  • Private sector: orgs set up and run by individuals and companies 85% of jobs

    • Profit-making 75% of jobs and non-profit-making 25% of jobs

    • Vital role for economy: creates jobs, provides goods and services, source of tax revenue for gov’ts

    • Key driver of innovation (ex. Cell phones)

• Profit-making orgs (businesses)

  • Operate with the goal of generating profits for their owners and shareholders by selling goods and services

    • Retail stores, manufacturing firms, service providers

  • profit/loss = TR-TC

• Non-profit-making orgs

  • Goal of supporting a cause or mission to benefit society, not profit generation through donations, grants, subscriptions, membership fees

    • Charities, clubs, associations, NGOs

  • surplus/deficit = TR - TE

• A business consists of all activities that involve the production and distribution of value-added goods and services within a market for a profit

• A business is a complex and dynamic system that creates value by strategically allocating and managing resources to meet its customers’ needs and achieve organizational objectives

  • Business allows people to get things done as a group that would be difficult or impossible to do individually (division of labor)

  • Durable - lasts longer than individuals

  • Accountable - are accountable for what they do (assumption)

  • Take advantage of large-scale technology

    • Economies of scale - cost advantages with larger volumes

    • Economies of scope - cost advantages with shared tech/resources (multiple products on the line)

  • Can offer legal protections for individuals within them (liabilities, taxes)

• Thinking of business as a “system”

  • Systems are sets of interrelated parts that interact to serve a common goal

  • Transformation model: inputs sourced from the environment are processed and returned (changed) as outputs

  • General systems theory: originated in biological systems; focuses on relationships between parts as a whole

  • Open systems are affected by the environment and affected the environment they operate

• System features

  • Interconnectedness: each element interacts with each other and affects the behavior of the whole system

  • Goal-directedness: systems are oriented towards achieving specific goals (and use feedback to meet them)

  • open/closed systems: open systems engage in exchanges with the environment, adapting and influencing one another (humans). Closed systems are isolated from external influences, does not adapt to environmental changes

  • Processes: all processes (input to output) require resources like people, equipment, technology, materials, etc.

  • Feedback mechanisms: ensure alignment and adaptation to achieve system goals

• System-environment interaction

  • Everything outside the system’s boundary is the environment

    • The points are which the system meets its environment are called the interface

• Subsystems - smaller parts that make up the larger system, contribute to the overall functionality and stability of the entire system

  • Characteristics: interdependence, specialization, adaptation

  • Problems (system failures) are a sign of a malfunctioning process. We should look at the system as a whole to identify underlying issues rather than just symptoms (don’t focus on just the subsystems)

• Fishbone Diagram, the Five Whys root cause analysis

Week 2

History of Business

• Stages of economic development:

  • Societies progress through stages based on changes in productive forces (major force = technology)

  • Agrarian -> industrial -> service -> information

  • Generalist worker -> specialized worker -> experience worker -> knowledge worker

• Agrarian Era & traditional societies

  • Agriculturally-based or low production tasks

  • Workers performed a wide range of tasks “generalist worker”

  • Skills were broad and diverse

  • Craftsmen and farmers controlled entire production process

  • Work was often seasonal and tied to natural cycles (droughts, disease)

• Industrial Era

  • Tech and mechanization inc production

  • Shift to manufacturing goods

  • Environment changes: infrastructure (roads, schools), urbanization of cities (workers move toward factories)

  • Intro to division of labor and specialization, skills narrower, specific and repetitive tasks

  • Less control over entire production process, work is tied to factory schedules and machine pacing

  • Subordination of labor - working class and ownership class

  • Labor unions: weekend, min wage, child labor laws, safety regulations, overtime pay

• Taylorism & Ford

  • Frederick Taylor “Scientific Management”

    • Conduct time and motion studies to analyze and optimize processes. Concern for efficiency

    • Divide larger tasks into smaller, specialized subtasks. Standardization methods and tools for each task

    • Geared toward mass production/assembly line organizations whose work was amenable to being broken down

    • Separation of planning (done by managers) and execution (done by workers) tasks

  • Henry Ford applied Taylor’s principles -> assembly line for automobiles “mechanization” of work

• Max Weber & Bureaucratic Management

  • He saw bureaucracy as a rational way to organize large institutions in an industrialized world

  • Providing efficiency and predictability in complex societies

  • Bureaucracy:

    • Hierarchy of authority

    • Division of labor and specialization

    • Formal rules and regulations

    • Impersonality in applying rules

    • Technical qualifications for positions

• Humanistic Management

  • Developed to balance the extreme focus on efficiency and mechanistic labor practices of scientific management theories

  • Hawthorne Studies on workers to understand how to increase motivation

    • Hawthorne effect - tendency of people to change their behavior when they know they’ve being watched

• Service Era

  • Shift from manufacturing products to service provision (healthcare, education, restaurants)

  • Focus on creating memorable experience for customers

  • Broader skill sets required (communication, problem-solving)

  • Emphasis on interpersonal ability

  • Transition from blue-collar to white-collar jobs

• Information Era

  • Rise of computers, internet, e-commerce -> knowledge-based economy

  • Shift to mental labor

  • Emphasis on information processing and speed

  • Collab across time zones and cultures

  • Continuous learning and adaptation to new tools

  • Gig Economy

    • Short-term contracts, freelance work instead of permanent jobs

    • Greater autonomy but less job security

    • Work increasingly detached from physical locations

• Adam Smith The Wealth of Nations

  • Father of capitalism

  • Free market economy

  • No gov’t regulation is needed to promote economic wealth

  • Invisible hand of market

    • Supply and demand sides use prices and profits to indicate what society wants and needs

    • Suppliers produce what society requires at a competitive price and quantities in order to get profits

    • Too little of good: high profit from high prices

    • “Invisible” because no central authority directing things - it emerges naturally from individual, self-interested choices

  • Free markets harness self-interest to meet societal needs without gov’t intervention

• Karl Marx The Communist Manifesto

  • Father of modern socialism

  • Capitalism leads to exploitation of workers by capitalists who extract surplus value from labor

  • Industrialization -> only the elite/capitalist has access to means of production (big investments are needed to launch factories)

  • The masses only have their labor to make a living -> dependent on the elite for survival

  • To maximize profit, elite squeezes out as much labor from the masses for as little cost as possible -> “extract surplus value from labor”

• Balancing Interests

  • Business: trying to keep costs low = works as independent

  • contractors (not employees, with full benefits)

  • Labor: pushing for better conditions and benefits

  • Consumers: want low cost, efficient transportation

  • Government: trying to figure out how to regulate this model

Organizational Environments

• Entropy (moving toward disorder over time without investing energy) -> orgs must input enough resources to maintain and grow (counteract entropy)

• Differentiation (moving toward specialization to fulfill environmental demands, inc complexity) -> know when to grow

• Equifinality (more than one way to succeed) -> openness to opportunities

• Cyclic nature (ongoing process) -> continuous learning/adapting

• Homeostasis (desire to achieve steady-state/balance) -> balancing stability and change

• General environments: forces affecting all organizations. Examples:

  • Social: class, structure, demographics, labor, mobility patterns, social institutions, social movements

    • Changing societal values and needs, social movements (BLM), societal concerns

  • Cultural: history, tradition, norms, values, expectations

    • Bribery, punctuality, communication styles, decision-making styles

    • Advertising, communication, social issues

  • Legal: laws, policies, legal practices, court system

  • Political: concentration and distribution of power, nature of political systems

    • Political instability, trade agreements, diplomatic relations, regulations

    • Lobbying, political donations, tax breaks

  • Economy: monetary policy, financial markets, ownership rules, employment figures, budgetary and tax policy

    • Capitalism and free-enterprise, socialism, mixed systems

    • Factors such as inflation, interest rates, and economic growth impact consumer spending and business investment decisions

  • Technology: research and developments, infrastructure, intellectual property

    • Causes paradigm shifts by introducing more efficient ways to operate, communicate, and reach customers

    • But, blurs line between work and life, cybersecurity and privacy concerns

  • Physical: natural resources, weather, infrastructure

    • Supply of raw materials, quality of inputs, waste assimilation

    • Resource depletion, pollution, habitat/biodiversity loss, climate change

    • Coca-Cola shut down bottling plant in India due to water shortages

• Specific environments: forces that affect a particular organization, or industry.

  • Customers: who, where, how many, how changing, demands

    • Commercial: B2C (business-to-consumer)

    • Industrial/enterprise: B2B (business-to-business) ex machinery, equipment, supplies

    • Government: B2G (business-to-government) ex aerospace firm building missile or surveillance systems to Dept of Defense

    • Offerings: subscription models, warranties (expanding from goods to services)

  • Suppliers/Distributors: supply chain, wholesalers, retailers

    • Supplies impact product quality, cost management (and profits), efficiency (timely deliveries), product innovation, etc.

    • Distributors: market access, efficiency, competitive advantage

    • Ex. coca-cola’s distribution network (local bottling partners), walmart and amazon pricing pressure

  • Unions/labor: employees, workers, direct and contract

    • Labor affecting business: skill level, productivity, wage, benefits, working conditions negotiations

    • Unions: voice, decisions on issues like outsourcing and automation, turnover

    • Business affecting labor: job creation, benefits, mental health, culture, upskilling

  • Competitors: technology, services, markets

    • Drive innovation and efficiency

    • Create a landscape that influences pricing, product development, strategic decisions

    • Collaboration and cooperation also affects the environment: industry standards and regulations, partnerships (joint ventures, strategic alliances). Ex Siemens and Philips

  • Government/regulators: rules, regulations, and legal environment

    • EU’s environmental regulations have prompted companies to innovate and adopt cleaner technologies

    • Gov’t agencies also create requirements in response to business action ex. Vehicle emission requirements, nutritional labeling, ingredient lists

Week 3

Ethics

• Ethics-set of moral principles or values that defines right and wrong for a person or group

• Ethical decision-making: not just what can you do legally, but what you should do morally

• Individual factors - personal ethics and values

  • Bad apples

• Situational factors - self-interest (agency problem), ethical fading

  • Bad cases

  • Agency theory: agency relationship where one party (the principal) delegates work to another party (the agent) to act on the principal’s interests

  • Issue: people tend to act on their self-interest, creating the potential of a misalignment between principal and agent’s interests. Ex. realtors

  • Ethical Fading: when ethical aspects of decision disappear from view, in the moment it’s easy for people to convince themselves that the behavior is unproblematic. Ex. Ford Pinto case

• Environmental factors - outside pressure, ill-conceived goals, slippery slope

  • Bad barrel

  • Milgram’s obedience experiment (1963) - he wanted to know why German soldiers and guards carried out horrific orders against other human beings in Nazi camps, increased “shocks” to a “learner” (actually an actor) for each incorrect answer, 65% of participants went all the way to a voltage that could kill someone

  • Hofling et al study (1966): nurses instructed over the phone to give a lethal drug dose to a patient by a doctor. 21/22 nurses obeyed!

  • Zimbardo: “If you put good apples into a bad situation, you’ll get bad apples

  • Ill-conceived goals (hyper-focused on outcomes) - setting goals and incentives to promote a desired behavior, that actually end up promoting undesired behavior Ex. efficiency, sales, Wells Fargo, Enron

    • Goals need to complement other important objectives - and be prioritized in order of importance in case they conflict

  • Slippery Slope small ethical indiscretions leading to gradually larger unethical transgressions over time

    • moral disengagement: rationalization process that allows people to slip into this pattern of behavior (see specific examples on slides)

      • 3 basic processes: 

      • (1) reframing behavior to appear less harmful/wrong 

        • Moral justification, euphemistic labeling, advantageous comparison,

      • (2) minimizing victim’s distress  

        • Distortion of consequences, dehumanization

      • (3) obscuring agency

        • Displacement of responsibility, diffusion of responsibility, attribution of blame

• Ethics myths

  • Unethical behavior is not always due to bad people

  • Unethical behavior is not due to lapses in ethical reasoning

    • We come equipped with a somewhat universal “moral sense”

  • Unethical behavior is not generally driven by unethical intentions or motivations

    • In the moment people generally don’t believe their behavior is problematic

• The likelihood of unethical behavior in organizations is heavily influenced by factors:

  • Organizational culture

  • Leadership examples

  • Clear ethical guidelines and enforcement

  • Transparency and accountability

  • Incentive structures

• Ethical dilemmas - frameworks offer a standard by which to judge whether an action is morally wrong/right

  • Utilitarian: doing the greatest good for the greatest number of people -> focus on consequences

  • Deontological: there are moral rules or duties that must be adhered to regardless of the outcomes (“don’t kill”) -> focus on the action

Social Responsibility

• Shareholder model (Friedman’s Argument)

  • Organization’s overriding goal should be profit maximization for the benefit of shareholders, the only group that has a claim on the corporation is the people who own it

• Stakeholder model (Freeman’s argument)

  • Management’s key responsibility— the firm’s long-term survival — is achieved by satisfying the interests of multiple stakeholders

  • ➔ Many groups have a claim on the corporation because it has the power to harm or benefit them (stakeholders)

• Shareholder: individual, group or organization that holds one or more shares in a firm, in whose name the stock certificate is issued, also called stockholder

• Stakeholder: individual, group or organization that has a direct or indirect stake in an organization because it can affect or be affected by that organization’s actions, objectives and policies

• Social contract of business

  • Social contract - people live in a society with moral rules of behavior. Participation in this social contract -> citizenship

  • Citizens have rights and responsibilities. As citizens, individuals both benefit from and contribute to the social contract

  • Business, like individuals, are part of this social contract -> corporate citizens

  • Corporate citizenship involves accepting responsibilities beyond the rights to make a profit

• Corporate social responsibility: maximize its positive impact and minimize its negative impact on society. CSR>Ethical>Legal actions

  • CSR decision-making: proactively contributing to societal well-being beyond moral and regulatory obligations

  • Global corporate citizenship: recognition that the social contract of business is global -> aim to produce higher standards of living for all communities

  • Triple bottom line: people, planet, and profit

    • People: labor practices, human rights, health and safety of goods

      • DEI practices, community involvement

    • Planet: sustainable practices, reducing environmental impact

      • Conserving resources- implementing energy efficient practices, circular economy model (recapturing waste in the supply chain), reducing pollution

    • Profit: ethical business practices, transparency and accountability

      • Ethical: prioritizing product safety, engaging in responsible marketing, reporting financial transactions accurately and truthfully, not engaging in anti-competitive practices (price fixing)

• Stereotypes

  • Culturally learned beliefs about a group

  • Lead to prejudice and discrimination -> generalizing from the stereotyped group without considering individual differences (ex. merit)

• People: DEI

  • Diversity: quality of having different social identities (e.g., gender, race, age, etc.) represented in a group or organization.

  • Equity: fairness or justice in the way people are treated, with the goal to create equivalent opportunities.

  • Inclusion: practice of involving, valuing and respecting the perspective of individuals, independent of their group membership.

  • DEI: initiatives aim to remove barriers that prevent qualified individuals from being fairly evaluated on their merits by addressing unconscious bias and stereotyping processes

• Why is diversity important in business

  • Business case: positive association with company performance, greater creativity and innovation due to different perspectives, better understanding and service of customers (more representative of population served), more satisfied workforce (greater inclusion)

  • Moral case: a way to tackle systemic bias (the right thing to do)

• Creating shared value (CSV)

  • Strategy to create economic and societal value simultaneously. 

  • The difference: CSR is about doing good things for society and the planet that have no direct benefit to the company. ➔ Shared value focuses on creating competitive and sustainable growth while helping society.

  • Addresses social problems that intersect with a business’ core strategy

  • (both benefit)

  • Refocuses companies on the right kind of profits: those that create

  • societal benefits rather than diminish them (next evolution of capitalism,

  • Porter & Kramer)

  • How? Rethink the business around unsolved societal problems or needs

    • Identify poorly served or overlooked customer groups

    • Redefine productivity in the value chain

    • Improving the local business environment

  • The Nescafe Plan -> ensures a stable, high-quality supply of coffee

Week 4

Creating a Business

• Entrepreneurship - the process of creating value by combining resources to transform ideas into economic goods and services

  • The ability to identify and respond to opportunity as well

  • Intrapreneurship -activities within a firm that can lead to innovation or spin-off organizations (Google’s 20% time policy)

• Entrepreneur - one who organizes, manages, and assumes the risk of a business or enterprise

  • Heterogeneous nature, openness to experience, high conscientiousness, self-efficacy and internal locus of control

• Mindset:

  • Opportunity-focused, innovative

  • Risk-taker, resourceful

  • Growth-oriented, adaptable

• The process:

1. Discovery: An entrepreneurial process begins with the idea generation, identifying

and evaluating the business opportunity

2. Concept Development: creating a business plan that sets goals, methods and

procedures for the business. Informed by research and serves as a road map to

guide and monitor activities towards the set goals

3. Resourcing: Identifying the sources from where the finance and the human

resource can be arranged

4. Actualization: Deciding the business structure and management resources to run

operations

• Types: sole proprietorship, partnership, limited liability company (LLC), corporation

  • Key differences: taxation, liabilities, organization life and succession, ownership

5. Harvesting: Analyzing actual against planned growth, undertake expansion or

stabilizing actions (e.g., new products, markets, will you go public?)

• Innovation - process of making changes to something that adds value to customers

  • New goods/services, production methods, markets, forms of organization, source of supply of raw materials

  • Entrepreneur combines inputs in an innovative way to generate value to customers - innovation creates new demand

  • Types of innovation:

    • Invention - totally new product, service, or process

    • Extension - new use or different application of existing product

    • Duplication - creative replication of an existing concept

    • Synthesis - combination of existing concepts and factors into a new formation or use

• Business plan - document outlining objectives of the business and ways to achieve

  • Includes goals, structure, market, and financial considerations

• Securing resources - identify potential investors, identify staffing needs, secure office space, etc.

• Taxation - pass-through taxation (income is passed directly to the owners and taxes on their personal tax returns) for all business types except corps

  • Double-taxation: corps pay taxes at both the corporate and individual levels (profits at corporate level, then dividends on shareholder’s individual tax returns)

• Liability - limited for LLCs, limited partners, and corps. Unlimited for sole proprietorships and general partners

  • Unlimited liability - personally responsible for all the debts and obligations of the business. If business cannot pay its debts, creditors can go after the personal assets of the owner(s)

• Vision/mission statement

  • Vision -> mission -> strategy -> activities

    • Vision is the goal, where we want to be

    • Mission: by doing what/how

Chap 3

• Sole Proprietorship - business owned and usually operated by one person who is responsible for all of its debts

  • Unlimited Liability - legal principle holding owners responsible for paying off all debts of a business

• General Partnership - business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts

  • Unlimited liability

• Limited Partnership - type of partnership consisting of limited partners and a general (or managing) partner

• Limited Partner - partner who does not share in a firm’s management and is liable for its debts only to the limits of said partner’s investment

• General (or Active) Partner - partner who actively manages a firm and who has unlimited liability for its debts

• Master Limited Partnership - form of ownership that sells shares to investors who receive profits and that pays taxes on income from profits

• Cooperatives - form of ownership in which a group of sole proprietorships or partnerships agree to work together for common benefits

• Corporation - business that is legally considered an entity separate from its owners and is liable for its own debts; owners’ liability extends to the limits of their investments

  • Limited Liability - legal principle holding investors liable for a firm’s debts only to the limits of their personal investments in it

  • Tender Offer - offer to buy shares made by a prospective buyer directly to a target corporation’s shareholders, who then make individual decisions about whether to sell

  • Double Taxation - situation in which taxes may be payable both by a corporation on its profits and by shareholders on dividend incomes

  • Closely Held (or Private) Corporation - corporation whose stock is held by only a few people and is not available for sale to the general public

  • Publicly Held (or Public) Corporation - corporation whose stock is widely held and available for sale to the general public

  • S Corporation - hybrid of a closely held corporation and a partnership, organized and operated like a corporation but treated as a partnership for tax purposes

  • Limited Liability Corporation (LLC) - hybrid of a publicly held corporation and a partnership in which owners are taxed as partners but enjoy the benefits of limited liability

  • Professional Corporation - form of ownership allowing professionals to take advantage of corporate benefits while granting them limited business liability and unlimited professional liability

  • Multinational (or Transnational) Corporation - form of corporation spanning national boundaries

  • Corporate Governance - roles of shareholders, directors, and other managers in corporate decision making and accountability

  • Stockholder (or Shareholder) - owner of shares of stock in a corporation

  • Board of Directors - governing body of a corporation that reports to its shareholders and delegates power to run its day-to-day operations while remaining responsible for sustaining its assets

  • Officers - top management team of a corporation

  • Chief Executive Officer (CEO) - the top manager of an organization

  • Strategic Alliance - strategy in which two or more organizations collaborate on a project for mutual gain

  • Joint Venture - strategic alliance in which the collaboration involves joint ownership of the new venture

  • Employee Stock Ownership Plan (ESOP) - arrangement in which a corporation holds its own stock in trust for its employees, who gradually receive ownership of the stock and control its voting rights

  • Institutional Investor - large investor, such as a mutual fund or a pension fund, that purchases large blocks of corporate stock

  • Merger: the union of two corps to form a new corp

  • Acquisition: the purchase of one company by another

  • Divestiture: strategy whereby a firm sells one or more of its business units

  • Spin-Off: strategy of setting up one or more corporate units as new, independent corporations

Business Lifecycle

• Theoretical map of stages, help business focus their strategies and anticipate challenges

  • Businesses don’t always have a predictable path (may regress or leap)

• Introduction Stage

  • Creation, issue: risks and sacrifices

  • Seed: initial concept development+market research

  • Startup: launch business, develop products/services, establish foothold in market

• Growth Stage

  • Rapid expansion, increasing market share, issue: stability and reputation

  • Need additional resources to continue momentum

  • Trying to keep quality while scaling up

  • Competitors begin to enter market

  • Airbnb, Uber

• Maturity Stage

  • Optimizing operations, maintaining market position, find new opps for growth, issue: streamline and adapt

  • Growth slows, business is stable and profitable

  • Shrinking profit margins due to competition

  • Need to merge & acquire

  • Apple, Microsoft

  • Institutionalization - emerging similarity among orgs in the same field

  • Stability - sub-systems start to develop:

    • Org’s ability to keep subsystems working together is key to survival

    • Subsystems start to replicate - org has a culture that wants to reproduce, that influences selection decisions, marketing, investment, etc.

• Decline (or Renewal) Stage

  • Managing gradual reduction of activities or reinvention, issue: decide whether to reinvest or prepare to divest

  • Profitability decrease, potentially leading to losses

  • Renewal: innovate the product, market, or business model to extend the life cycle

  • Decline: Kodak

  • Renewal: Nintendo

Next

Week 5

Chap 6

• Organizational structure: specification of the jobs to be done within an organization and the ways in which they relate to one another

• Organization chart - diagram depicting a company’s structure and showing employees where they fit into its operations

• Chain of command - reporting relationships within a company

• Steps to developing structure of any business

  • Specialization - who does what

    • Job specialization - process of identifying the specific jobs that need to be done and designating the people who will perform them

  • Departmentalization - how people can best be grouped together

    • Departmentalization - process of grouping jobs into logical units

    • Profit center - separate company unit responsible for its own costs and profits

    • Functional departmentalization - dividing an organization according to groups’ functions or activities

    • Product departmentalization - dividing an organization according to specific products or services being created

    • Process departmentalization - dividing an organization according to production processes used to create a good or service

    • Customer departmentalization - dividing an organization to offer products and meet needs for identifiable customer groups

    • Geographic departmentalization - dividing an organization according to the areas of the country or the world served by a business

  • Establishment of a decision-making hierarchy - who will be empowered to make which decisions and who will have authority over others

    • Centralized organization - most decision making authority is held by upper-level management

      • Tall organizational structure - characteristic of centralized companies with multiple layers of management

        • Ex. U.S. army

    • Decentralized organization - a great deal of decision making authority is delegated to levels of management at points below the top

      • Flat organizational structure - characteristic of decentralized companies with relatively few layers of management 

        • Ex. Typical law firm

    • Span of control - number of people supervised by one manager

    • Delegation - process through which a manager allocates work to subordinates

      • Assigning Responsibility - duty to perform an assigned task

      • Granting Authority - power to make the decisions necessary to complete a task

      • Creating Accountability - obligation employees have to their manager for the successful completion of an assigned task

    • Line authority - authority flows in a direct chain of command from the top of the company to the bottom

    • Line department - department directly linked to the production and sales of a specific product

    • Staff authority - authority based on expertise that usually involves counseling and advising line managers

    • Staff members - advisers and counselors who help line departments in making decisions but who do not have the authority to make final decisions

    • Committee and team authority - authority granted to committees or teams involved in a firm’s daily operations

    • Work team - groups of operating employees who are empowered to plan and organize their own work and to perform that work with a minimum of supervision

    • Functional structure - authority is determined by the relationships between group functions and activities

    • Divisional structure - corporate divisions operate as autonomous businesses under the larger corporate umbrella

      • Division - department that resembles a separate business in that it produces and markets its own products

    • Matrix structure - superimposing one form of structure onto another

    • International organizational structures - approaches to structure developed in response to the need to manufacture, purchase, and sell in global markets

Organizational Structure

• Organizational design - when managers develop or change the org structure

• Stability - requirements of consistently and predictably managing daily routines

• Flexibility - opportunity to explore competitive advantages the firm will need to be successful in the future

• Specialization - degree to which divided into separate jobs

• Tall structure - several layers of management, fewer employees reporting to each manager

  • Narrow span of control

  • Slower communication, more control

• Flat structure - few management layers, larger number of employees reporting to each manager

  • Wide span of control

  • Faster communication, more freedom for employees

• Formalization - degree to which an employee’s tasks are governed by explicit rules and procedures

  • Better for industries where behavior needs to be more predictable, greater consistency of output is necessary (but also lots of innovation)

• Centralization - degree to which decision making authority is concentrated at higher levels in the organization

  • Centralized - small number of people make most decisions (ensures consistency, may be slow in responding to market needs)

  • Decentralized - lower-level managers make decisions, decision making power is more spread out (quick response to market needs, employee autonomy, less consistent responses)

  • Hybrid - centralized core functions and decentralized for better market response

• Chain of command - Unbroken line of authority that extends from the top of the organization to the lowest echelon outlining reporting relationships

  • Line functions: direct responsibility for accomplishing the objectives of the

organization (e.g., operations, production, sales)

• Staff functions: help support the line function to work more effectively (e.g.,

HR, IT)

• Departmentalization

  • 1. Functional (popular) based on business function (marketing, accounting, IT)

    • *advantages: efficiencies, easy to scale, good coordination and communication within functional area

    • *disadvantages: can lead to poor coordination and communication across functional areas, may result in limited view of organizational goals

  • Divisional:

    • 2. Product: based on major product areas (shoes, accessories, apparel)

    • 3. Geographic: based on location served (North America, Europe)

    • 4. Process: based on good or service flow (raw material, manufacturing, disposal)

    • 5. Customer: B2C, B2B, military, gov’t

      • *advantages of divisional: highly responsive to market changes, allows for tailored strategies for different divisions

      • *disadvantages: duplication of efforts across divisions, potential for resource suboptimization, may lead to inconsistent processes

• Departmentalization: Matrix Structure:

  • Combination of 2+ types, most commonly the functional and some divisional types

  • Often used in project-based industries (tech, consulting) where cross-functional collaboration is critical. Balances efficiency, agility, and coordination -> dynamic, complex markets

  • Can be challenging to manage (might create conflict due to authority roles, resources to maintain, etc.)

• Optimizing structures

  • Functional

    • Organizations with a single or dominant product/service line

    • Stable environments, where efficiency is key (e.g., banks)

  • Divisional

    • Organizations with multiple product lines/markets with differing needs

    • Need to balance efficiency and responsiveness to market needs

    • Fast changing environments around the division lines

  • Matrix

    • Need to share resources, expertise across different products or projects

    • Complex organizations that need to maintain efficiency, agility & coordination

    • Fast changing environments

• Structure and life cycles

  • Early stages: functional structure common for start-ups and small businesses

  • As companies grow larger, move towards divisional structures based on market demands

  • Matrix structures are generally more common in mature organizations. This structure is designed to maximize resource utilization, balancing efficiency and innovation

• Structure Formation

  • Organizations become structured in response to a particular environmental Context

  • Structure does not emerge automatically, but as a series of responses, adaptations

  • Some structure is by design and some due to context

  • Structures impact:

    • Communication flows, role of teams, distribution of employees

  • Structures reflect:

    • Control and leadership preferences

    • Strategic considerations

    • Level of concentration of decision-making power

• Multiple product lines company experiencing inefficiencies and poor communication across departments -> implement matrix structure to enhance cross-functional communication