Chapter 6: Organizing the Business

Chapter 6: Organizing the Business

Objective 1: Factors Influencing Organizational Structure

  • Unique Organizational Structure: Every organization has a unique structure that evolves over time, reflecting changes in management needs and external factors.
  • Fundamental Framework: Managing the organizational structure is an essential part of the overall management process.
  • Definition: Organizational structure refers to the specification of jobs within an organization and how these jobs relate to one another, outlining connections between employee positions and departments.
  • Influencing Factors:
    • Organizational mission
    • Strategy
    • Size
    • Environment
  • Continuous Change: Organizations often modify their structures to increase efficiency and effectiveness.
  • Example: Watch Steve Jobs discuss the organizational structure of Apple.

Organizational Charts

  • Definition: An organization chart visually represents the structure of the organization, depicting jobs and the chain of command.
  • Chain of Command: Illustrated in the chart, it shows reporting relationships between various job roles within the company.
  • Evolving Structures: No two organizations share identical structures, and most evolve through continuous adjustments.
  • Reminder: Success in business requires ongoing adaptability and organizational change.

Determinants of Organizational Structure

  • Managerial Considerations: Managers assess various factors to determine the most effective organizational structure.
  • Goal: The ultimate aim is to ensure the organization is both effective and efficient.
  • Small Business Structures:
    • Typically feature flat organizational structures with fewer management levels.
    • Advantages: Accelerated decision-making process due to fewer hierarchical layers.
    • Drawback: Decision-making may take considerable time due to lack of higher-level managers.
  • Example of Restructuring: Google created Alphabet to adjust its corporate structure.

Objective 2: Specialization and Departmentalization

  • Building Blocks of Organization: The initial steps in developing a company's structure include specialization, departmentalization, and defining decision-making hierarchies.
  • Specialization:
    • Definition: The process of designating specific individuals to perform certain tasks.
    • Importance of assigning roles to enhance efficiency and expertise.
  • Departmentalization:
    • Definition: The grouping of jobs into logical units or departments.
    • Facilitates control and coordination within the organization.
  • Decision-Making Hierarchy: Establishing who has the power to make decisions and how decision-making authority is distributed.

Job Specialization

  • Example: In Delta Airlines, employees perform multiple related tasks, including scheduling flights, booking passengers, and managing luggage.
  • Benefits of Specialization:
    • Workers develop expertise in specific areas.
    • Facilitates better coordination among departments.
    • Specialized jobs are easier to learn and executed more efficiently than nonspecialized jobs.

Departmentalization

  • Process: Organizing jobs into departments or divisions simplifies job control and coordination.
  • Profit Centers: Each division may be treated as a profit center with individual responsibility for profits and losses.
    • Example: Nordstrom categorizes stores into multiple departments like men's clothing and jewelry, allowing for targeted revenue management.
Types of Departmentalization

  • Functional Departmentalization:

    • Common in start-ups and various service & manufacturing companies.
    • Divides the organization based on functional activities (e.g., marketing, HR).
    • Can be further divided into specialized sub-groups (e.g., sales, social media within marketing).

  • Product Departmentalization:

    • Organizes a company according to the products or services offered.
    • Example: Kraft Heinz has different divisions focusing on various product categories.

  • Process Departmentalization:

    • Common in manufacturing, it separates operations based on production processes (e.g., claims department in an insurance company).

  • Customer Departmentalization:

    • Organizes departments based on specific customer segments (e.g., various sections in retail geared towards different customer interests).

  • Geographic Departmentalization:

    • Structurally divides a company according to regional markets served (e.g., Levi Strauss has divisions by continents).

Multiple Forms of Departmentalization

  • Organizations often utilize various types of departmentalization across different levels.
    • Example: A company may use functional departmentalization at the top level, geographic division at the middle, and product-based at lower levels.

Objective 3: Centralization and Decentralization

  • Definitions:
    • Centralized Organizational Structure: Characterized by tall hierarchies with multiple management layers, often leading to delays in information flow.
    • Decentralized Organizational Structure: Features fewer management layers (flat structure) and encourages local decision-making (e.g., Quicken Loans).
  • Span of Control:
    • Refers to the number of employees supervised by a single manager.
    • Wide Span: Typical in flat organizations.
    • Narrow Span: Seen in tall organizations.

The Delegation Process

  • Definition: The process whereby managers assign work to employees lower in the hierarchy.
  • Components of Delegation:
    • Assigning Responsibility: The duty to perform an assigned task.
    • Granting Authority: Providing the power to make decisions for task completion.
    • Creating Accountability: The obligation to achieve successful task completion.
  • Key Principle: Responsibility and authority must align for delegation to be effective.

Forms of Authority

  • Line Authority: Direct chain of command, flowing up and down between managers and subordinates, enabling direct supervision.
  • Staff Authority: Provides advisory services without direct authority over line functions. Staff members assist in decision-making but do not finalize decisions.
  • Committee and Team Authority: Groups appointed to make decisions on behalf of a larger entity, offering a decision-making body beyond the authority of individual members.
  • Work Teams: Empowered groups with minimal oversight, responsible for organizing and planning their work.

Objective 4: Types of Organizational Structures

  • Functional Structure: Most common in small to medium-sized organizations, where authority is defined by functional relationships between departments.
  • Divisional Structure: Organized around specific products or geographical areas; focused teams manage products and market strategies.
    • Example: McDonald's employs a divisional structure based on geographical markets.
  • Matrix Structure: A hybrid of functional and divisional structures; features dual reporting lines, creating complexity in management (e.g., Martha Stewart Living).
  • International Organizational Structure: Focused on global operations, subject to changing needs and adaptations due to international trade and collaboration.

New Organizational Forms

  • Team Organization: Characterized by project teams with minimal hierarchy, encouraging resource fluidity and collaborative problem-solving.
    • Advantages: Improved communication, faster problem-solving, and flexible workplace.
    • Disadvantages: Potential for conflict and accountability issues among team members.
  • Virtual Organization: Lacks formal structures and adjusts team composition based on project demands, often leveraging outsourcing for operational efficiency (e.g., Amazon).
  • Learning Organization: Prioritizes continuous knowledge transfer and employee development towards achieving organizational excellence through improvement.

Objective 5: Informal Organization and Intrapreneuring

  • Informal Organization: Represents social structures that guide interpersonal work dynamics and collaboration outside formal processes.

    • Advantages: Flexibility, responsiveness to change, and enhanced individual focus.
    • Disadvantages: Risk of fostering office politics and could detract from organizational goals.

  • Informal Groups: Spontaneous interactions among employees that can influence workplace dynamics positively or negatively (e.g., solidarity in crisis vs. contributing to negative behavior).

  • The Grapevine: An unofficial communication channel that disseminates information in various formats (e.g., gossip chain vs. cluster chain).

Intrapreneuring

  • Definition: Maintaining a small business’s flexibility and innovation within a larger corporate structure.
    • Key Roles:
    • Inventor: Initiates new ideas or products.
    • Product Champion: Middle manager who supports and promotes the initiative.
    • Sponsor: High-level manager who advocates for project resources and supports execution.

Exercises and Activities

  • TEAM EXERCISE: Engage with program-related questions and scenarios to apply the chapter's content.