Structuring Organizations for Today’s Challenges Chapter Structuring Organizations for Today’s Challenges 8 8-1

THE CHANGING ORGANIZATION Often change in organizations is due to evolving business environments: More global competition Declining economy Faster technological change Pressure to protect the environment Customer expectations have also changed – Consumers today want high-quality products with fast, friendly service and all at low cost. See Learning Goal 2: Compare the organizational theories of Fayol and Weber. 8-2

STRUCTURING an ORGANIZATION Determine what work needs to be done Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures See Learning Goal 1: Outline the basic principles of organization management. 8-3

Two Major Organizational Theorists HENRI FAYOL MAX WEBER

HENRI FAYOL

Fayol’s Principles of Organization Degree of Centralization Communication Channels Order Equity – respect & justice Esprit de Corps Unity of Command Division of Labor Authority Hierarchy of Authority Subordination of Individual Interest

ORGANIZATIONS BASED on FAYOL’S PRINCIPLES Organizations in which employees have no more than one boss; lines of authority are clear. Rigid organizations that often don’t respond to customers quickly.

MAX WEBER

WEBER’S PRINCIPLES 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.

Front Line/Supervisory Management Pyramid CEO CFO COO Top Sales Mgrs Plant Mgrs. Mid-Level Supervisors Foremen Front Line/Supervisory

Organizational Design Following Fayol’s and Weber’s concepts, organizations were designed for managers to control workers

Organizing Designing structure of the organization and creating conditions and systems in which everyone and everything work together to achieve organization’s goals and objectives Create Corporate Hierarchy Generate the Organizational Chart

Organizational Design Hierarchy – one person at the top and a ranked sequential order from top down Chain of command – line of authority that moves from top of hierarchy to lowest level

BUREAUCRATIC ORGANIZATIONS Bureaucracy -- An organization with many layers of managers who set rules and regulations and oversee all decisions. It can take weeks or months to have information passed down to lower-level employees. Bureaucracies can annoy customers. See Learning Goal 2: Compare the organizational theories of Fayol and Weber. 8-14

Organizational Chart

Purpose of an Organizational Chart Show the activities of the organization Highlight subdivisions of the organization Identify different types of work performed Provide information about different management levels Show the lines of authority and the flow of organizational communications

Typical Organization Chart

Considerations Involved in Structuring Organizations Centralization/Decentralization Span Of Control

Centralization vs. Decentralization of Authority Degree of Centralization The degree to which an organization allows managers at lower levels to make decisions

Centralized Authority Decision-making authority is maintained at the top level of management at the company’s headquarters Example: McDonald’s

Centralization (No Delegation) Advantages Greater Top-Management Control More Efficiency Simpler Distribution System Disadvantages Less Responsiveness to Customers Less Empowerment Lower Morale Away from Headquarters

Decentralized Authority Decision-making authority is delegated to lower-level managers more familiar with local conditions than headquarters is. Example: J.C. Penney

Decentralization (Delegation of Authority) Advantages Better Adaptation to Customer Wants More Empowerment of Workers Faster and More Informed Decision Making Higher Morale Disadvantages Less Efficiency Complex Distribution System Less Top-Management Control

Span of Control

Span of Control The optimal number of subordinates a manager supervises or should supervise effectively. See Learning Goal 3: Evaluate the choices managers make in structuring organizations. 8-25

Span of Control I. Capabilities of Subordinates & Manager II. Complexity of Job Geographical Closeness Functional Similarity Need for Coordination Planning Demands Functional Complexity

Span of Control - Narrow Advantages More Control by Management More Chances for Advancement Closer Supervision Disadvantages Less Empowerment Higher Costs See Learning Goal 2: Explain the various issues involved in structuring organizations. See Text Pages: 214

Span of Control - Broad Disadvantages Advantages Reduced Costs Fewer Chances for Advancement Overworked Managers Advantages Reduced Costs More Empowerment See Learning Goal 2: Explain the various issues involved in structuring organizations. See Text Pages: 214

Organizational Structures Tall Organizations Structures determine the way the company responds to employee and customer needs Flat Organizations

Organizational Structures Tall Organization Structure -- An organizational structure in which the organization chart would be tall because of the various levels of management.

Organizational Structures Tall Organizations Many Layers of Management Communication distorted High Cost of Management Narrow Span of Control

Tall Organizational Structure

Organizational Structures Flat Organization Structure -- An organizational structure that has few layers of management and a broad span of control.

Organizational Structures Flat Organizations More responsive Current Trend Creation of Teams Broad Span of Control

Flat Organizational Structure

Departmentalization Departmentalization -- Divides organizations into separate units.

Advantages of Departmentalization 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 of Departmentalization Departments may not communicate well. Employees may identify with their department’s goals rather than the organization’s. 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.

Ways to Departmentalize By Function Workers are grouped by skills and expertise to specialize their skills.

Other Ways to Departmentalize

Other Ways to Departmentalize

Organization Models

FOUR WAYS to STRUCTURE an ORGANIZATION Line Organizations Line-and-Staff Organizations Matrix-Style Organizations Cross-Functional Self- Managed Teams See Learning Goal 4: Contrast the various organizational models. Traditional business models, such as line organizations and line-and-staff organizations, are giving way to new structures. 8-43

Line Organizations

Line Organizations Line Organization -- Has direct two-way lines of responsibility, authority and communication running from the top to the bottom. Everyone reports to one supervisor. There are no specialists, legal, accounting, human resources or information technology departments. Line managers issue orders, enforce discipline and adjust the organization to changes.

Line Organization

Line Organizations Advantages Disadvantages Clear Authority & Responsibility Easy to Understand Each Employee Has One Supervisor Disadvantages Inflexible Few Specialists for Advice Long Line of Communication Difficult to Handle Complex Decisions

Line/Staff Organizations

Line/Staff Organizations Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees. Line personnel have authority to make policy decisions. Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees.

Line Personnel Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees. Line personnel have authority to make policy decisions.

Staff Personnel Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees.

Line-and-Staff Organization

Line/Staff Organizations Advantages Same as Line Org plus Access to expert advice Disadvantages Same as Line Org

Matrix Organizations

MATRIX ORGANIZATIONS Specialists from different parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure. Emphasis is on product development, creativity, special projects, communication and teamwork. See Learning Goal 4: Contrast the various organizational models. The creation of matrix organizations was in response to the inflexibility of other more traditional organizational structures. This structure brings specialists from different parts of the organization to work together temporarily on specific projects. 8-55

Typical Matrix Organization

Typical Matrix Organization

Advantages of Matrix Style Inter-organizational cooperation and teamwork is encouraged. Creative solutions to product development problems are produced. Efficient use of organizational resources.

DISADVANTAGES of the MATRIX STYLE It’s costly and complex. Good interpersonal skills and cooperative employees are a must. Teams are not permanent Employees may be confused about where their loyalty belongs. See Learning Goal 4: Contrast the various organizational models. 8-59

Typical Matrix Organization

Fixing The Matrix Organization

Fixing The Matrix Organization A way to fix the problem of matrix-style teams is to establish long-term teams. Empower teams to work closely with suppliers, customers and others to figure out how to create better products.

Fixing The Matrix Organization Cross-Functional Self-Managed Teams Groups of employees from different departments who work together on a long- term or permanent basis.

Fixing The Matrix Organization

Cross-Functional Self-Managed Teams Empowered Autonomous

Benchmarking and Outsourcing

Benchmarking and Outsourcing Comparing an organization’s practices, processes, and products against the world’s best

Benchmarking and Outsourcing If a company can’t match the benchmark, they may try to outsource.

Benchmarking and Outsourcing Assigning various functions, such as accounting, production, security, billing, maintenance, and legal work to outside organizations

Outsourcing Firm Production Accounting Maintenance Advertising Legal Training

Outsourcing Benefits Downside Time to focus on company’s primary function Increased level of expertise Cost effectiveness Decreased overhead Less personal approach Potential for competing for the outsourcing firm’s time

Benchmarking and Outsourcing Core Competencies -- The functions an organization can do as well as or better than any other organization in the world.

Adapting to Market Changes Change isn’t easy. Employees like to do things the way they always have. Get rid of old, inefficient facilities and equipment. Use the Internet to get to know your customers and sell directly to them.

Restructuring

Restructuring Restructuring -- Redesigning an organization so 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 organizational chart. The manager’s job is to assist and support frontline workers, not boss them.

Inverted Organization Structure Empowered front-line workers Support Personnel Top Mgmt.

Traditional and Inverted Organization Structure

Organizational Culture Organizational or Corporate Culture -- The widely shared values within an organization that foster unity and cooperation to achieve common goals Some of the best organizational cultures emphasize service. Culture is shown in stories, traditions and myths.

The Formal and Informal Organization Each organization is composed of two organizations – the Formal organization and the Informal organization

Formal Organization Formal Organization -- Details lines of responsibility, authority and position. The formal system is often slow and bureaucratic but it helps guide the lines of authority.

Formal Organization Organization Division Department Group Individual

Informal Organization The system of relationships that develop spontaneously as employees meet and form relationships. Informal organization helps foster camaraderie and teamwork among employees. No organization can be effective without formal and informal organization.

Limitations of Informal Organizations The informal system is too unstructured and emotional on its own. Informal organization may also be powerful in resisting management directives.

Examples of Informal Group Norms Do your job but don’t produce more than the rest of the group. Don’t tell off-color jokes or use profane language among group members. Listen to the boss and use his/her expertise but don’t trust him/her. Everyone is to be clean/organized at the workstation.

Examples of Informal Group Norms(cont’d) Never side with managers in a dispute involving group members. Respect/help your fellow group members on the job. Criticize the organization only among group members- never among strangers. Drinking is done off-the-job- Never at work!