Organizing the Business Firm Chapter 7 Organizing the Business Firm

Learning Objectives Discuss the elements that influence a firm’s organizational structure Describe specialization and departmentalization as the building blocks of organizational structure These learning objectives are based upon those at the beginning of the chapter. For a review of learning objectives, see the summary at the end of the chapter, as well as the list of key terms. Objectives: p.184. Summary: p.206-207.

Learning Objectives Distinguish between responsibility and authority and explain the differences in decision making in centralized and decentralized organizations Explain the differences between functional, divisional, project, and international organization structures and describe the most popular forms of organizational design Define the informal organization and discuss intrapreneuring These learning objectives are based upon those at the beginning of the chapter. For a review of learning objectives, see the summary at the end of the chapter, as well as the list of key terms. Objectives: p.184. Summary: p.206-207.

Organizational Structure The specification of the jobs to be done within a business and how those jobs are related to one another Each organization must develop a structure that meets its specific needs Size, technology, and changes in environmental circumstances affect the structure Discussed on pages 186-189. Activities: Review Questions: #1.

Chain of Command Organizational charts illustrate the company’s organizational structure Shows employees’ positions and how they relate to each other Demonstrates the the flow of decision making power Discussed on pages 187. Activities: Review Questions: #3,4.

Developing the Organization Structure Specialization Determining who will do what task Departmentalization Determining how those tasks should be grouped together to make the workplace more efficient Discussed on page 187-190. Each of these concepts is discussed in-depth on the following slides. Activities: Have students explain organizational structure based upon their involvement in group projects. They can address specialization (what student does what task and why), and departmentalization (which students work together in small groups to complete tasks). Analysis Questions: #7

Specialization Identify the tasks required Identify the employees to complete the tasks Job specialization Using employees with special expertise to perform specialized tasks Small organizations have fewer employees to complete all tasks (less specialization) As organizations grow, they can hire more employees and become more efficient through specialization Discussed on page 188-189. Activities: Review Questions: #7.

Departmentalization Grouping jobs into logical units Increases efficiency through division of labour Allows for better control & coordination Top management can more easily monitor performance Bases of departmentalization Customer Product Process Geographic Functional Discussed on page 189-190. Activities: Review Questions: #7.

Profit Centres Department units responsible for their own costs and profits A “mini-business” unit A means of assessing profits from sales in a particular area Discussed on page 189. Activities: Have students discuss the benefits of using the profit centre approach. What firms would they suggest would be good candidates for such a structure?

Customer Departmentalization Departmentalization according to the types of customers likely to buy a given product Salespeople tend to specialize and gain expertise in their departments Discussed on page 189. Activities: Let students give examples of firms which would be suitable for the customer-based structure. Review Questions: #7.

Product Departmentalization Departmentalization according to the products being created or sold Consumer office supplies vs. Business office supplies Photocopiers vs. Computers Tax return preparation vs. Company financial statements Discussed on page 189. Activities: Review Questions: #7.

Process Departmentalization Departmentalization according to the production process used to create a good or service Assembly Painting Discussed on page 189. Activities: Let students give examples of firms which would be suitable for the process-based structure. Review Questions: #7.

Geographic Departmentalization Departmentalization according to the area of the country or world supplied Western vs. Eastern region Canadian vs. American Discussed on page 190. One of the simplest and most frequently used approaches to departmentalization. Activities: Review Questions: #7.

Functional Departmentalization Departmentalization according to functions or activities accounting & finance marketing human resource Discussed on page 190. Activities: Review Questions: #7.

The Combination of Various Organizational Structures Discussed on pages 190-191. This is a rendition of Figure 7.3 on page 190 which demonstrates how different bases of organizational structure are often combined into a single organization design. Activities: Review Questions: #7.

The Decision Making Hierarchy The decision making hierarchy defines who is responsible for making certain kinds of decisions Three step process Assigning tasks to employees Performing tasks Distributing authority across the organization using a centralized or a decentralized approach Discussed on page 190-191. Activities: Review Questions: #7.

Task Assignment Responsibility Authority The duty to perform an assigned task a cashier can ring up a sales order on a point of purchase terminal Authority The power to make the decisions necessary to complete a task a store manager can make decisions about how to treat specific transactions, or can sign to authorize cheques or returns Discussed on page 191. Activities: Analysis Questions: #9.

Task Performance Delegation Accountability The assignment of a task, a responsibility, or authority by a manager to a subordinate Accountability Liability of subordinates for accomplishing tasks assigned by managers Discussed on page 191-192. Activities: Analysis Questions: #9.

Distribution of Authority Centralization Top managers retain most of the decision making rights for themselves Decentralization Lower- and middle-level managers are allowed to make significant decisions Discussed on page 191-192. Activities: Invite students to give examples of what kinds of organizations should be centralized? Why do they feel that way? Are there disadvantages to centralization? What are they? Are there organizations that should be decentralized? The objective of the discussion is to illustrate that there is no “right way” to distribute authority in organizations. It is not “one size fits all”!

Span of Control The number of people managed by one manager Wide span many subordinates Narrow span very few subordinates Complicated tasks require more supervision and a narrow span of control Discussed on page 192-193. Activities: Analysis Questions: #9.

Types of Authority Line authority Staff authority Committee/ team authority Discussed on pages 194-195. This is a title slide. Each concept is discussed separately on the following slides. Activities: Ask students to give an example of a “line position” and a ”staff position” in their school. Analysis Questions: #2.

Line Authority The chain of command is direct and is indicated by a solid line in the organization chart Authority flows in a straight line Authority flows from top to bottom Line departments Departments linked directly to the production and sales of a specific product Line employees The “doers” in a department who must make the right decisions in order make the firm a success Discussed on pages 194. Activities: Ask students to give an example of a “line position” and a ”staff position” in their school. Analysis Questions: #2.

Staff Authority Authority that is based on expertise or provide support to line managers Do not have line authority to make decisions Assist line managers in doing their jobs more efficiently Staff authority is indicated by a dotted line in the organization chart Legal staff, marketing research Discussed on pages 194. Activities: Ask students to give an example of a “line position” and a ”staff position” in their school.

Committee & Team Authority Authority is granted to committees or work teams Committee members may include top managers and specially selected employees Committees may be permanent or temporary Teams need to have decision making authority in order to complete their tasks efficiently Teams will plan their work and complete the task independently Discussed on pages 194-195. Activities: The students often work on group projects. Use this analogy to demonstrate a team or committee authority system. Then, ask students to work in groups to develop company profiles for the types of firms that will use team/committee authority structures.

A Line and Staff Organization Chart Discussed on page 195. This is an example for line and staff positions based upon Figure 7.4 on page 195. Activities: Ask students to give an example of a “line position” and a ”staff position” in their school.

Basic Organizational Structures Functional Divisional Project International Discussed on pages 196-200. This is a title slide. Each concept is discussed separately on the following slides. Activities: Have students contrast the departmentalization and organizational structures components of the chapter. They must understand that while one looks are task assignment and divisional design, the other looks at the overall organizational design. These two components come together to create similar structures. It is important that they understand that the functional structure essentially the same as the functional organization presented earlier. Analysis Questions: #5,8.

Functional Structure Oldest & most commonly used Method Units are formed based on the functions that must be carried out Discussed on page 196. Activities: Have students compare the functional structure for basic organizational structure, back to the functional structure for departmentalization. Make sure they see the the functional method of departmentalizing, and the functional method of basic organizational structure, accomplish the same goal. Analysis Questions: #7.

Advantages of Functional Structure Focuses attention on the key activities that must be performed Expertise develops within each functional area Employees have clearly defined career paths The structure is simple and easy to understand Eliminates duplication of activities Discussed on page 196. This is summarized from the first half of Table 7.1 on page 196. Activities: Have students give an example for how each of the advantages in the list applies to functional structure.

Disadvantages of Functional Structure Conflicts often arise between departments No single function is responsible for overall organizational performance Employees in each functional area have a narrow view of the organization Coordinating highly specialized functions may be difficult Decision making is slow Discussed on page 196. Activities: Have students compare the functional structure for basic organizational structure, back to the functional structure for departmentalization. Make sure they see the the functional method of departmentalizing, and the functional method of basic organizational structure, accomplish the same goal.

Divisional Structure Divides the organization into separate divisions each of which operates as a semi-autonomous unit Divisions can be based on key aspects of the firm’s function Products Customers Geography Process Discussed on pages 196-197. Activities: Have students compare the divisional structure for basic organizational structure, back to the various divisional structures for departmentalization. Make sure they see that the divisional method of departmentalizing, and the divisional method of basic organizational structure, accomplish the same goal.

Advantages of a Divisional Structure Accommodates change and expansion Increases accountability Develops expertise in the various divisions Encourages training for top management Discussed on pages 196-197. This summarizes the first part of Table 7.2 which summarizes the advantages of the divisional structure. Activities: Have students compare the divisional structure for basic organizational structure, back to the various divisional structures for departmentalization. Make sure they see that the divisional method of departmentalizing, and the divisional method of basic organizational structure, accomplish the same goal.

Disadvantages of a Divisional Structure Activities may be duplicated Lack of communication among divisions Adding diverse divisions may blur the focus of the organization Company politics may affect the allocation of resources Discussed on page 196-197. This summarizes the second part of Table 7.2 which summarizes the advantages of the divisional structure. Activities: Have students compare the divisional structure for basic organizational structure, back to the various divisional structures for departmentalization. Make sure they see that the divisional method of departmentalizing, and the divisional method of basic organizational structure, accomplish the same goal.

Project Organization An organization that uses teams of specialists to complete specific projects Used by organizations with new product opportunities or for special projects Allows teams of specialists to work together as needed Traditional structures like line authority may be too restrictive May involve the “matrix organization” where project manager and regular line managers share authority until the project is completed Discussed on page 197-198. Activities: Analysis Questions: #5,8.

International Organization Firms that have operations in many countries May establish an international division to coordinate these activities Concentrate production in low-cost areas and then distribute and market globally Allow each of their businesses to function autonomously within local markets Produce and sell products in whatever local market is appropriate without any consideration of national boundaries Discussed on pages 199-200. Analysis: Have students work in groups of two or three to complete this library-based research assignment. Students should research two international companies. Then, they should try to determine how the companies structure their international operations. They can be asked to present their findings to the class. An optional ending to this assignment is to have the students evaluate whether the international organization seems to be appropriate given the current and future growth opportunities facing the firm.

International Division Structure Discussed on pages 199-200. This illustration depicts Figure 7.6 on page 99. Analysis: Have students work in groups of two or three to complete this library-based research assignment. Students should research two international companies. Then, they should try to determine how the companies structure their international operations. They can prepare an organizational structure for the companies they select, demonstrating how the company does, or could, organize their international business.

Boundaryless Organization The original structures, or boundaries, within the firm are eliminated Useful to open firm up and facilitate open communication across the company Discussed on pages 200-201.

Team Organization Depends on project-type teams of workers with little or no underlying functional hierarchy Employees float from project to project depending on firm’s resources and employees’ skills Individual team “units” may change direction, explore new ideas, and try new things without dealing with rigid bureaucratic structures Discussed on page 201-202.

Virtual Organization Has little or no formal structure Limited number of staff Limited administrative office Space is leased and basic support services are outsourced as needed Maximum flexibility to meet organizational needs Discussed on page 202.

A Virtual Organization Model Contracted Administrative Services Contracted Manufacturing in Asia Core Organization Discussed on pages 202. This diagram depicts Figure 7.7. Contracted Sales & Marketing Contracted Distribution & Logistics

The Informal Organization A naturally occurring network of relationships and communications that develops between staff despite the nature of the formal structure A powerful force that can alter the formal structure Discussed on pages 203-204. Activities: Review Questions: #6.

Grapevine An informal communication method that carries gossip & other information throughout the firm Communication is more rapid than formal channels Can be used creatively by management to facilitate the maintenance of the formal system Discussed on page 204. Activities: Ask students if there is a “grapevine” operating in their school. How do they know which classes to take? Which faculty to take? Do they feel that the “grapevine” is an efficient or inefficient communication system?

Intrapreneuring The process of creating and maintaining the innovation and flexibility inherent in a small business, but in a larger organization As businesses grow, innovation and creativity begin to suffer New ideas can be stifled in an effort to preserve the status quo “intrapreneurs” are like “entrepreneurs” but are employees who can help the firm to grow in exciting and creative ways Discussed on page 205. Activities: Application exercises #10