The Structure and Culture of a Business Organization Chapter Eight The Structure and Culture of a Business Organization © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Introduction to Business

Learning Objectives Discuss why organizational structure and culture are important determinants of a company’s ability to pursue a profitable business model. Identify the relationship between organizational design, structure, culture and the environment. Identify the main types of organizational structure companies can choose from to group their activities, employees and resources.

Learning Objectives Explain why the need to coordinate functions and divisions is an important element in organizational design and list the main methods companies use to coordinate their activities. Identify the nature and sources of organizational culture and understand the way it influences and shapes employee behavior and attitudes.

Structure, Culture, and the Organization’s Business Model Organizational structure the framework of task-and-authority relationships in a company that coordinates and motivates employees to work together toward a common goal

Structure, Culture, and the Organization’s Business Model Organizational culture the set of shared company values and norms that shape the way employees and groups interact with one another

Structure, Culture, and the Organization’s Business Model Organizational design the process of creating an organizational structure and culture so that a company can pursue its business model profitably

The Contingency Approach to Organizational Design a type of organizational design that depends on the changing forces in a firm’s competitive environment

Implementing a Profitable Business Model through Organizational Structure and Culture Figure 8.1

Question? What structure groups people together because of their expertise? Functional Divisional Procedural Geographic The correct answer is “A” – functional. See next slide.

Functional Structures a structure that groups people together because of their expertise or the type of activity they do (typically into departments)

Grouping Activities by Function Figure 8.2

Chantal Cookware’s Functional Structure Figure 8.3

Advantages of a Functional Structure Coordination advantages Motivational advantages

Disadvantages of a Functional Structure When the range of goods and services a company makes increases As companies attract customers with different needs As companies expand nationally and globally

Divisional Structures: Product, Market, and Geographic a structure that groups employees by function but allows them to focus their activities on a particular product line or type of customer

Divisional Structures: Product, Market, and Geographic Product structure a structure that groups functions into divisions that specialize in certain products Market structure a structure that groups functions into divisions that serve different types of customers

Dell’s Market Structure Figure 8.5

Divisional Structures: Product, Market, and Geographic Geographic structure a structure in which divisions are created to serve the needs of customers in a particular region, country, or world area

Geographic Structure Figure 8.6

Advantages of a Divisional Structure Coordination advantages Motivational advantages

Disadvantages of a Divisional Structure Operating costs are much higher Having more managers can result in communications problems, slower decision making, and lower performance

Question? Which structure groups people and resources in two ways simultaneously? Product Process Matrix Environmental The correct answer is “C” – matrix. See next slide.

Matrix Structure Matrix Structure a structure that groups people and resources in two ways simultaneously: by function and by product

Matrix Structure Figure 8.7

Matrix Coordination Advantages The company can develop new products more rapidly It can maximize communication and cooperation between team members Innovation and creativity are the key to the company’s competitive advantage

Disadvantages of a Matrix Structure Dual reporting relationships Bosses come into conflict over precisely who is in charge of which team members and for how long Employees feel the lack of a stable “home base”

Coordinating Functions and Divisions Allocating authority Specifying work rules Using formal integrating mechanisms

Allocating Authority Tall and flat hierarchies Minimum chain of command Centralization and decentralization of authority

Tall and Flat Structures Figure 8.8

Problems in Companies with Too Many Levels in the Hierarchy Figure 8.9

Allocating Authority Minimum chain-of-command principle the principle that a company’s structure should be designed with as few managerial levels as possible

Work Rules and Standard Operating Procedures Management by exception the use of rules and standard operating procedures to coordinate operations whereby managers only intervene to take corrective action

Integrating Mechanisms organizing tools that managers use to increase communication and coordination among a company’s functions and divisions

Integrating Mechanisms Direct contact Liaison roles Task forces Cross-functional teams

Four Kinds of Integrating Mechanisms Figure 8.10

Sony’s Cross-Functional Product Teams Figure 8.11

Values and Norms Company values Company norms the shared standards a company’s members use to evaluate whether or not they have helped the company achieve its goals Company norms beliefs, attitudes, and behaviors that specify how a company’s members should behave

Sources of a Company’s Culture Values of the founder Organizational socialization Ceremonies and rites Stories and language Read about one company’s shared values

Sources of a Company’s Culture Figure 8.12

Organizational Socialization the process by which newcomers learn and absorb a company’s values and norms and acquire the work behaviors and attitudes necessary to perform their jobs effectively

Characteristics of a Strong Culture Cohesive sets of values and norms that work together to motivate employees Companies communicate with employees their desire to invest in them Rewards are directly linked to an employee’s performance and to the performance of the company as a whole

Video: NBB NBB is a high tech, environmentally conscious brewery that produces a world class beer. The corporate culture of NBB is strong and pervasive. What are the sources of a company’s corporate culture? Is this true at NBB? Discussion Questions: Why is corporate culture an important element in understanding businesses? Answer: As you can see from the success of New Belgium Brewery, strong, ethically driven corporate cultures built on employee participation, satisfaction, and relationships, is truly empowering. Modern employees look fore many other intangible rewards from their jobs. NBB core values and beliefs define its culture. Its organizational structure supports that culture. Its HR practices, the attitudes of the owners, and employee empowerment have demonstrated a direct and measurable impact on productivity, cost reduction, and profitability. What is the key difference between a company’s values and its norms? Answer: A company’s “values” are the shared standards which its members use to evaluate their contributions in achieving the company’s vision and goals. Company norms specify the kinds of shared beliefs, attitudes, and behaviors that its members should observe and follow. Norms are informal. In NBB, both values and norms are significant features of its corporate culture. What are the sources of a company’s corporate culture? Is this true at NBB? Answer: The following are the sources of a company’s culture (1) values of the founder; (2) ceremonies and rites; (3) organizational socialization; (4) stories and language. At NBB, there is clear evidence of all four of these factors operating. You may ask students to identify examples for each of the four sources.