CHAPTER 5 ORGANIZING

Introduction Organizing Organization chart arranging the activities of the enterprise in such a way that they systematically contribute to the enterprise’s goals. Organization chart Shows the structure of the organization Chain of command/scalar chain/line of authority Represents the path a directive should take in travelling from president to employees or vise versa Informal organization The informal , habitual contacts, communications and ways of doing things that employees always develop

Principle of Organizational Structure Definition The sum of the ways an organization divides its labor into distinct tasks and then coordinates them.

1) Differentiation Definition – the extent to which tasks are divided into subtasks and performed by individuals with specialized skills. 4 types of differentiation are: a) Task Differentiation b) Cognitive Differentiation c) Horizontal Differentiation d) Vertical Differentiation

a) Task Differentiation The extend to which tasks are divided The more tasks break down, the greater the task differentiation.

b) Cognitive Differentiation Exists when people in different units within the organization think about different things and think about similar things differently. Example: Accountants might think about organizational performance in terms of financial results, while marketers might think about organizational performance in terms of customer satisfaction.

c) Horizontal Differentiation Refers to the specialization of tasks across the organization. The GREATER the division and specialization of task such as marketing, accounting, sales and production across the organization, the GREATER the horizontal differentiation.

d) Vertical Differentiation Occurs when tasks are subdivided and carried out by specialized individuals from top to the bottom of the organization’s hierarchy. A simple way to assess vertical differentiation is to look at how many levels there are in the organization’s hierarchy.

2) Integration The extent to which various parts of the organization cooperate and interact with each other. Benefit – the coordinated movement of different people and activities toward a desired organizational objective. The driving forces of integration is interdependence.

Types of Interdependence Pooled interdependence Occurs when various groups are largely independent in their functions but collectively contribute to a common output. Sequential interdependence Exists when the outputs of one group become the inputs of another group. Reciprocal interdependence Exists when two or more groups depend on one another for inputs.

Uncertainty For a firm refers to the extent for to which future input, throughput and output factors cannot be forecast accurately. More difficult to forecast these factors, the greater uncertainty the firms faces. The greater the uncertainty, the greater the need for integration and coordination.

Integration Mechanisms Rules Establish as guidelines for behavior and consequence. The standard operating procedures. Goals Goals specify what outcomes individuals should achieve. Values Specify underlying objectives

3) Formalization Formal systems specify clear lines of authority within an organization, or who reports to whom. Chain of command – specifies the sequence of people through whom information and decisions should flow. Unity of command – an employee should have on an only ONE boss. Span of control – refers to the number of employees reporting to a given supervisor.

The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures. Highly formalized jobs offer little discretion over what is to be done. Low formalization means fewer constraints on how employees do their work.

Tall Organization Structure CEO SALES MANAGER ASIA REGION MANAGER EUROPE REGION MANAGER AMERICA REGION MANAGER PRODUCTION MANAGER R&D MANAGER Tall Organization Structure 4 LEVELS SPAN OF CONTROL = 3 TOTAL EMPLOYEES = 40

Flat Organization Structure CEO SALES DEPARTMENT PRODUCTION DEPARTMENT MARKETING DEPATMENT ACCOUNTING DEPARTMENT R&D DEPARMENT HUMAN RESOURCE DEPARTMENT CUSTOMER SERVICE DEPARTMENT Flat Organization Structure 3 LEVELS SPAN OF CONTROL = 7 TOTAL EMPLOYEES = 57

4) Informalization Informal structures for decision making, communication and control are often not represented in organizational charts, yet they pervade the day-to-day functioning of many organizations.

5) Centralization and Decentralization Refer to the level at which decisions are made Top levels @ low levels. Centralization The degree to which decision-making is concentrated at a single point in the organizations. Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders. Decentralization Organizations in which decision-making is pushed down to the managers who are closest to the action.

Factors that Influence the Amount of Centralization More Centralization Environment is stable. Lower-level managers are not as capable or experienced at making decisions as upper-level managers. Lower-level managers do not want to have a say in decisions. Decisions are significant. Organization is facing a crisis or the risk of company failure. Company is large. Effective implementation of company strategies depends on managers retaining say over what happens. Figure 10.4a Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Factors that Influence the Amount of Decentralization More Decentralization Environment is complex, uncertain. Lower-level managers are capable and experienced at making decisions. Lower-level managers want a voice in decisions. Decisions are relatively minor. Corporate culture is open to allowing managers to have a say in what happens. Company is geographically dispersed. Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions. Figure 10.4b Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Creating Departments Functional Structure Grouping activities around basic functions like manufacturing, sales and finance.

Advantages and Disadvantages Managers functionally specialized and therefore more efficient. Responsibility for overall performance with chief executive only. Less duplication of effort than in other types of organization. Can overburden chief executive and lead to slower decision making and less responsiveness. 3. Increased returns to scale 3. Reduces the attention paid to specific products, customers, markets or areas. 4. Simplifies training 4. Results in functionally specialized managers rather than general managers. 5. Simple and proven over time Facilitates tight control by chief executive

Geographical/Regional Structure Firms structure themselves around various geographical areas or regions. The size or scope of the region is typically a function of the volume of business.

Advantages and Disadvantages 1. Facilitates local responsiveness. Often creates cross-regional coordination difficulties. 2. Develops in-depth knowledge of specific regions/countries. 2. Can inhibit ability to capture global scale economics. 3. Creates accountability by region. Duplicates resources and functions across regions. 4. Facilitates cross-functional coordination within regions.

Product Structure The firm is organized around specific products. Each product division is generally treated as a profit center.

Advantages and Disadvantages Reduces resource duplication. Can inhibit cross-divisional coordination. Facilitates cross-product 2. Can obscure global economies of scale. 3. Facilitates cross-regional

ADVANTAGES AND DISADVANTAGES Matrix Structure Consists of two organization structures superimposed on each other. ADVANTAGES AND DISADVANTAGES ADVANTAGES DISADVANTAGES Increased information flow throughout organization. 1. Increased conflict potential. 2. Balanced orientation. 2. Ambiguity of authority.

Mixed Organizational Structures objective – to gain the advantages of one structure and reduce its disadvantages.

Designing Organizations 1) Environmental Complexity Simple environments exist when relatively few internal and external variables need to be incorporated into decision making and these variables are similar. Complex environments exist when a great number and dissimilar variables can affect decision making.

Internal Environment Complexity 3 general factors: Organization’s personnel Organization’s functional and staff units The nature of the organizational products or services External Environmental Complexity Geographic scope of the environment Diversity of competitors

2) Environmental Dynamism Static environment may have few or many factors, but these factors tend to remain stable over time. Dynamic environment is refer to the rapidly changing external environment typically requires quick internal organization changes.

3) Making Organizational Design Decisions Simple Environments with Varying Stability Simple and Static Environments Simple and Dynamic Environments Complex Environments with Varying Stability Complex, Nonsegmentable, Static Environments Complex, Nonsegmentable, Dynamics Environments Complex, Segmentable, Static Environments Complex, Segmentable, Dynamic Environments

c) Moving from Domestic to International Structure Domestic Organization with Export Department Domestic Organization with International Division Advanced Global Structures Organizing to Think Globally and Act Locally Direct Contact – integration by sharing information Liaison – to enhance the link, and therefore information flows, between two or more groups. Teams – effective mechanism when integration needs arise across a wide set of functional areas.

Signs of Poor Structure-Environment Fit Inappropriate organizational structures block needed information sharing focus attention away from information that needs to be gathered and consequently, hurt decision quality, organizational prosperity and perhaps even survival.

The key warning signs: Decision maker’s inability to anticipate problems Increase in conflict that prevents effective implementation.