McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Chapter 8 Organization Structure

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Learning Objectives After studying Chapter 8, you will know: how differentiation and integration influence your organization’s structure how authority operates the roles of the board of directors and the chief executive officer how span of control affects structure and managerial effectiveness how to delegate work effectively the difference between centralized and decentralized organizations

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Learning Objectives (cont.) After studying Chapter 8, you will know: how to allocate jobs to work units how to manage the unique challenges of the matrix organization the nature of important integrative mechanisms

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Fundamentals Of Organizing Organization chart depicts the positions in the firm and how they are arranged provides a picture of the reporting structure conveys the following information the boxes represent different work the titles in the boxes represent the work performed by each unit reporting and authority relationships indicated by solid lines showing superior-subordinate connections levels of management indicated by the number of horizontal layers in the chart all persons or units that are on the same rank and report to the same person are on one level

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved PersonnelFinance ManufacturingSales PersonnelFinance ManufacturingSales FinanceR&DMarketingPersonnel Chemical Products Metal Products President Conventional Organization Chart

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Fundamentals Of Organizing (cont.) Differentiation means that the organization is comprised of many different units that work on different kinds of tasks aspect of the organization’s internal environment division of labor - assignment of different tasks to different people or groups specialization - process in which different individuals and units perform different tasks differentiation is high when there are many subunits and many kinds of specialists who think differently

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Fundamentals Of Organizing (cont.) Integration degree to which differentiated units work together and coordinate their efforts all the specialized tasks in an organization cannot be performed completely independently coordination - procedures that link the various parts of the organization to achieve the organization’s overall mission any job activity that links different work units performs an integrative function the more a firm is differentiated, the greater the need for integration among the units

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Vertical Structure Corporate governance role of a corporation’s executive staff and board of directors in ensuring that the firm’s activities meet the goals of the firm’s stakeholders Authority in organizations authority - the legitimate right to make decisions and to tell other people what to do resides in positions rather than people in private business enterprises, owners have ultimate authority traditionally authority has been the primary means of running an organization

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Authority in organizations (cont.) board of directors - elected by the stockholders to run the organization led by a chair performs three functions selecting, assessing, rewarding, and perhaps replacing the CEO determining the firm’s strategic direction and reviewing financial performance assuring ethical, socially responsible, and legal conduct inside directors - the firm’s top managers who sit on the board outside directors - are likely to run other companies successful boards tend to be active, critical participants in determining company strategies The Vertical Structure (cont.)

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Vertical Structure (cont.) Authority in organizations (cont.) chief executive officer (CEO) - occupies the top of the organizational pyramid authority officially vested in the board of directors is assigned to the CEO CEO personally accountable to the board and owners top management team - typically comprised of the CEO, president, chief operating officer, chief financial officer, and other key executives frequently meet with the CEO to make important decisions

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Vertical Structure (cont.) Hierarchical levels hierarchy - the authority levels of the organizational pyramid top management - strategic managers in charge of the entire organization middle management - in charge of plants or departments lowest levels - made up of lower management and workers called the operational level of the organization trend in the U.S. is to reduce the number of hierarchical layers subunits - subdivisions of an organization subunits with fewer layers have higher operating efficiency

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Vertical Structure (cont.) Span of control the number of subordinates who report directly to a manager narrow spans produce tall organizations wide spans produce flat organizations

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Capability and supportiveness of manager Similarity of jobs and performance measures Ambiguity of work Optimal span of control Subordinate training and access to information Subordinate preference for autonomy Factors Affecting The Optimal Span Of Control

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Vertical Structure (cont.) Delegation assignment of authority and responsibility to a subordinate can occur between any two individuals in any type of structure with regard to any task responsibility - assignment of a task that an employee is supposed to carry out should delegate enough authority to complete the task accountability - expectation that employees perform a job, take corrective action when necessary, and report upward on the status and quality of their performance managers remain responsible and accountable for their own actions and those of their subordinates

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Vertical Structure (cont.) Delegation (cont.) advantages of delegation permits getting work done through others manager saves time manager frees herself/himself to devote energy to other important, higher-level activities provides subordinates with more important jobs provides subordinates with the opportunity to develop new skills and to demonstrate potential from the organization’s perspective, jobs are done more efficiently and cost-effectively

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Schedule checkpoints for reviewing progress Follow through by discussing progress at appropriate intervals Give the subordinate the authority, time, and resources (people, money,equipment) to perform the assignment Define the goal succinctly Select the person for the task Solicit the subordinate’s view about suggested approaches Steps In Effective Delegation

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Vertical Structure (cont.) Decentralization result of the delegation of responsibility and authority centralized organization - high-level executives make most decisions and pass them down to lower levels for implementation decentralized organization - lower-level managers make important decisions ideally, decision making should occur at the level of the people who are most directly affected and have the most intimate knowledge about the problem most U.S. executives understand the importance of decentralizing decision making to the point of the action

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Horizontal Structure Basic concepts departmentalization - subdividing the organization into smaller subunits line departments - have responsibility for the principle activities of the firm deal directly with the organization’s primary goods and services line managers typically have: substantial authority and power ultimate responsibility for major operating decisions accountability for “bottom-line” results staff departments - provide specialized support for line units moving toward a role focused on strategic support and expert advice

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Horizontal Structure (cont.) Functional organization jobs (and departments) are specialized and grouped according to business functions and the skills they require e.g., production, marketing, R&D, human resources, and finance common in both large and small organizations may be most appropriate in rather simple, stable environments

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved General VP Human resources VP Accounting VP Operations VP Marketing Chairman CEO VP R & D Functional Organization

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Functional organization (cont.) advantages of functional structure include: economies of scale can be realized effective environmental monitoring within functional area performance standards are better maintained greater opportunity for specialized training and in-depth skill development technical specialists are relatively free of administrative work decision making and lines of communication are simple and clearly understood The Horizontal Structure (cont.)

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Horizontal Structure (cont.) Functional organization (cont.) disadvantages of functional structure people may care more about their own function than about the company as a whole may lose focus on overall product quality and customer satisfaction managers do not develop knowledge of the other areas of the business become specialists, not generalists conflicts arise among functions and communications suffer accordingly high differentiation may create barriers to coordination across functions

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Horizontal Structure (cont.) Divisional organization units grouped around products, customers, or geographic regions groups all functions into a single division duplicates each function across all of the divisions separate divisions may act almost as separate businesses work autonomously to achieve the goals of the organization several ways to create divisional structure

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Divisional organization (cont.) product divisions - all functions that contribute to a given product are organized under one manager advantages information needs are managed more easily people have full-time commitment to a particular product line task responsibilities are clear people receive broader training flexibility of structure better suits it for unstable environments disadvantages difficult to coordinate across product lines managers may not acquire depth of functional knowledge duplication of effort is expensive The Horizontal Structure (cont.)

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved General VP Product A VP Product B VP Product C VP Product E Chairman CEO VP Product D Product Organization

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Horizontal Structure (cont.) Divisional organization (cont.) customer and geographical divisions build divisions around customer or geographical distinctions advantages can focus on customer needs can provide faster and better service disadvantage duplication of activities across many customer groups and geographic areas is expensive

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved General managers for: New York Philadelphia Boston General managers for: Cleveland Chicago St. Louis General managers for: Raleigh Atlanta Orlando General managers for: Seattle San Francisco Los Angeles General managers for: Dallas Houston Albuquerque Northeast regional manager Midwest regional manager Southeast regional manager Pacific regional manager Chairman CEO Southwest regional manager Geographical Organization

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved PersonnelFinance ManufacturingSales PersonnelFinance ManufacturingSales FinanceR&DMarketingPersonnel Chemical Products Metal Products President Conventional Organization Chart

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Horizontal Structure (cont.) Matrix organization hybrid form of organization in which functional and divisional forms overlap have dual reporting relationships in which some managers report to two superiors rather than a single line of command Matrix survival skills Problems can be avoided if behavioral skills are learned The matrix diamond illustrates needed skills

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Production group Two-boss manager Engineering group Two-boss manager Personnel group Two-boss manager Accounting group Two-boss manager Matrix Organizational Structure Production group Two-boss manager Engineering group Two-boss manager Personnel group Two-boss manager Accounting group Two-boss manager Accounting Project Manager A Project Manager B Project management Production Chairman CEO EngineeringPersonnel Functional managers

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Advantages of the Matrix Organization Decentralized decision making to where needed Extensive communication networks Decisions delegated so higher management not overloaded Resource utilization due to sharing of key resources Employees learn collaborative skills Dual career ladders and career opportunities

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Disadvantages of the Matrix Organization Confusion can arise because of violation of unity of command Managers who share subordinates may jockey for power Mistaken belief that it is the same thing as participative decision making so everyone needs to be consulted Too much democracy and lead to not enough action

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Top Executive Needs to balance power and emphasis between functions and divisions “2-Boss” Manager/Employee Must learn how to respond to two superiors and prioritize multiple demands Functional Manager Must collaborate and manage conflicts with product/division manager Product Manager Must collaborate and manage conflicts with functional manager The Matrix Diamond

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Network Organizations The network organization a collection of independent, mostly single-function firms not one firm but a web of interrelationships among many firms dynamic network (modular/virtual corporation) - temporary arrangement among partners that can be assembled and reassembled to adapt to the environment contracts stipulate expected results poorly performing firms can be removed and replaced offers flexibility, innovation, quick responses, and reduced costs and risks managers become brokers play several important boundary roles

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved A Dynamic Network Distributors Suppliers Brokers Producers Designers

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved The Horizontal Structure (cont.) Matrix organization (cont.) matrix form today - resurgence based on: pressures to consolidate costs and be faster to market need for better coordination across functions in the business need for coordination across countries in global business understanding of the matrix has increased matrix is not a structure, but a process relationships allow information to flow through the organization norms, values, and attitudes shape how people think

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Organizational Integration Coordination by standardization standardization - establishing common rules and procedures that apply uniformly to everyone constrains actions integrates various units by regulating what people do formalization - reliance on rules and regulations to govern how people interact should apply to most (if not all) situations most appropriate in relatively stable and unchanging situations

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Organization Integration (cont.) Coordination by plan interdependent units are required to meet deadlines and objectives that contribute to a common goal does not require a high degree of stability and routinization units free to modify their actions as long as they are able to meet deadlines and targets required for working with others Coordination by mutual adjustment involves feedback and discussion to jointly determine how to approach problems and devise mutually agreeable solutions allows for flexible coordination to deal with novel problems costly from the standpoint of time

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Organization Integration (cont.) Coordination and communication substantial information flows to and from the environment organizations need to develop structures for processing information option one: reducing the need for information slack resources - extra resources that can be used “in a pinch” e.g., inventory reduces the need for information about sales demand creating self-contained tasks - change from a functional organization to a product or project organization each unit has the resources needed to perform its task communications flow within each team rather than among a complex array of interdependent groups

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved Organization Integration (cont.) Coordination and communication option two: increasing information processing capability invest in information systems - e.g., employing or expanding computer systems create horizontal relationships - foster coordination across different units horizontal processes include: direct contact liaison roles task forces teams product, program, or project managers matrix organization

McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill© 2003 The McGraw-Hill Companies, Inc. All rights reserved High information processing demands Create slack resources Create self-contained tasks Invest in information systems Create horizontal relationships Reduce the need for information Process more information Managing High Information-Processing Demands