Chapter 8 Notes: Structuring Organizations for Today’s Challenges

Organizing for Success

• Building an organization from the bottom up involves:
  • Creating a division of labor.
  • Dividing tasks through job specialization.
  • Setting up teams or departments (departmentalization).
  • Allocating resources.
  • Assigning specific tasks.
  • Establishing procedures.
  • Developing an organization chart.
  • Adjusting to new realities.
• The principles of organization apply to businesses of all sizes.

The Changing Organization

• Evolving Business Environments:
  • More global competition.
  • Declining economy.
  • Faster technological change.
  • Pressure to protect the environment.
• Changing Customer Expectations:
  • High-quality products with fast, friendly service and all at low cost.
• The Development of Organizational Design:
  • Mass production of goods led to complexities in organizing businesses.
  • Economies of scale — Companies can reduce their production costs by purchasing raw materials in bulk.
  • The average cost of goods decreases as production levels rise.

Fayol’s Principles of Organization

• Unity of command.
• Hierarchy of authority.
• Division of labor.
• Subordination of individual interests to the general interest.
• Authority.
• Degree of centralization.
• Clear communication channels.
• Order.
• Equity.
• Esprit de corps.
• Characteristics of organizations based on these principles:
  • Employees have no more than one boss; lines of authority are clear.
  • Rigid organizations that often don’t respond to customers quickly.

Max Weber and Organizational Theory

• In addition to Fayol’s principles, Weber emphasized:
  • Job descriptions.
  • Written rules, decision guidelines, and detailed records.
  • Consistent procedures, regulations, and policies.
  • Staffing and promotion based on qualifications.
• Hierarchy — A system in which one person is at the top of an organization and there is a ranked or sequential ordering from the top down.
• Chain of command — The line of authority that moves from the top of the hierarchy to the lowest level.
• Organization chart — A visual device that shows relationships among people and divides the organization’s work; it shows who reports to whom.
• Bureaucracy — An organization with many layers of managers who set rules and regulations and oversee all decisions.
  • It can take weeks or months for information to pass down to lower- level employees.
  • Bureaucracies can annoy customers.
  • Some companies are reorganizing to let employees make decisions to please customers.

Decisions to Make in Structuring Organizations

Choosing Centralized or Decentralized Authority

• Centralized authority — When decision-making authority is maintained at the top level of management at the company’s headquarters.
  • It can limit the flexibility to immediately respond to regional or local market changes and trends.
• Decentralized authority — When decision-making authority is delegated to lower-level managers more familiar with local conditions than headquarters management could be.

Choosing the Appropriate Span of Control

• Span of control — The optimum number of subordinates a manager supervises or should supervise.
• When work is standardized, broad spans of control are possible.
• The appropriate span narrows at higher levels of the organization.
• The trend today is to reduce middle managers and hire better low-level employees.

Choosing between Tall and Flat Organizational Structures

• Tall organization structure — An organizational structure in which the pyramidal organization chart would be quite tall because of the various levels of management.
• Flat organization structure — An organizational structure that has few layers of management and a broad span of control.

Weighing the Advantages and Disadvantages of Departmentalization

• Departmentalization — The dividing of organizational functions into separate units.
• Workers are grouped by skills and expertise to specialize their skills.
• Advantages:
  • Employees develop skills and progress within a department as they master skills.
  • The company can achieve economies of scale.
  • Employees can coordinate work within the function, and top management can easily direct activities.
• Disadvantages:
  • Departments may not communicate well.
  • Employees may identify with their department’s goals rather than the organization’s.
  • The company’s response to external changes may be slow.
  • People may not be trained to take different managerial responsibilities; instead they become specialists.
  • Department members may engage in groupthink and may need outside input.

Looking at Alternative Ways to Departmentalize

• Product.
• Function.
• Customer group.
• Geographic location.
• Process.
• Some firms use a combination of departmentalization techniques to create hybrid forms.

Organizational Models

Line Organizations

• Line organization — Has direct two-way lines of responsibility, authority, and communication running from the top to the bottom, with all people reporting to only one supervisor.
  • There are no specialists or legal, accounting, human resource, or information technology departments.
  • Line managers issue orders, enforce discipline, and adjust the organization to changes.

Line-and-Staff Organizations

• Line personnel — Employees who are part of the chain of command that is responsible for achieving organizational goals.
  • Have authority to make policy decisions.
• Staff personnel — Employees who advise and assist line personnel in meeting their goals.
  • Includes marketing research, legal advising, IT, and human resource management.

Matrix-Style Organizations

• Matrix organization — Specialists from different parts of the organization are brought together to work on specific projects but still remain part of a line-and-staff structure.
  • Emphasis is on product development, creativity, special projects, rapid communication, and interdepartmental teamwork.
• Advantages:
  • Managers have flexibility in assigning people to projects.
  • Interorganizational cooperation and teamwork is encouraged.
  • Creative solutions to product development problems are produced.
  • Organizational resources are used efficiently.
• Disadvantages:
  • It’s costly and complex.
  • Employees may be confused where their loyalty belongs.
  • Good interpersonal skills and cooperative employees are a must.
  • It may only be a temporary solution to a long-term problem.

Cross-Functional Self-Managed Teams

• Cross-functional self-managed teams — Groups of employees from different departments who work together on a long-term basis.
  • Helps fix the problem of matrix-style teams by establishing long-lived teams.
  • Teams are empowered to make decisions without management approval.

Going beyond Organizational Boundaries

• Cross-functional teams work best when the voice of the customer is heard.
• Teams that include customers, suppliers, and distributors go beyond organizational boundaries.
• Government coordinators may assist in sharing market information across national boundaries.

Managing the Interactions Among Firms

Networking

• Using communications technology and other means to link organizations and allow them to work together on common objectives.
• Networked organizations are closely linked online, and information is passed in real time.
  • The present moment or actual time in which something takes place.
• Transparency — when a company is so open to other companies that electronic information is shared as if the companies were one.
  • Most companies are no longer self-sufficient; they’re part of a global business network.
• Virtual corporation — A temporary networked organization made up of replaceable firms that join and leave as needed.
  • Look to other companies for world-class quality.
• Benchmarking — Compares an organization’s practices, processes, and products against the world’s best.
  • Can lead to competitive advantage.
  • If a company can’t do as well as the best, they can outsource it.
• Core competencies — Those functions that the organization can do as well as or better than any other organization in the world.

Adapting to Change

• Restructuring — Redesigning an organization so that it can more effectively and efficiently serve its customers.
• Inverted organization — An organization that has contact people at the top and the CEO at the bottom of the organization chart.
  • The manager’s job is to assist and support frontline people, not boss them around.
• Organizational (or corporate) culture — Widely shared values within an organization that provide unity and cooperation to achieve common goals.
  • Culture is shown in stories, traditions, and myths.
  • Culture can be positive or negative.
  • Some of the best organizational cultures emphasize service, especially to customers.
• Formal organization — Details lines of responsibility, authority, and position.
  • Often slow and bureaucratic, but it helps guide the lines of authority.
• Informal organization — The system that develops spontaneously as employees meet and form cliques, relationships, and lines of authority outside the formal organization.
  • Helps foster camaraderie and teamwork among employees.
• The grapevine, the unofficial flow of information among employees, is the nerve center of the informal organization.