REORGANIZATION is for EVERYONE 8-1 Adjusting to changing markets is normal in capitalist economies. Companies must go back to basic organizational principles and firm up the foundation. LO 8-1 Many companies are reorganizing, especially those in decline. Including:  Auto makers  Homebuilders  Banks

STRUCTURING an ORGANIZATION 8-2 LO 8-1 Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures Adjust to new realities

THE CHANGING ORGANIZATION 8-3 LO 8-2 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.

Mass production of goods led to complexities in organizing businesses. PRODUCTION CHANGED ORGANZIATION DESIGN 8-4 LO 8-2 Economies of Scale -- Companies can reduce their production costs by purchasing raw materials in bulk. The average cost of goods decreases as production levels rise.

HENRI FAYOL MAX WEBER Two Major Organizational Theorists

HENRI FAYOL

FAYOL’S PRINCIPLES Degree of centralization Clear communication channels Order Equity Esprit de corps 8-7 LO 8-2 Unity of command Hierarchy of authority Division of labor Subordination of individual interests to the general interest Authority

ORGANIZATIONS BASED on FAYOL’S PRINCIPLES 8-8 LO 8-2 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 8-10 LO 8-2 Employees just need to do what they’re told. 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

Top Mid-Level Front Line/Supervisory CEOCFOCOO Sales Mgrs Plant Mgrs. SupervisorsForemen Management Pyramid

HIERARCHIES and COMMAND 8-12 LO 8-2 When following Fayol and Weber, managers control workers. Hierarchy -- A system in which one person is at the top of an organization and there is a ranked or sequential ordering from the top down. Chain of Command -- The line of authority that moves from the top of the hierarchy to the lowest level.

ORGANIZATIONAL CHARTS 7-13 LO 8-2 Organization Chart -- A visual device that shows relationships among people and divides the organization’s work; it shows who reports to whom.

TYPICAL ORGANIZATION CHART 8-14 LO 8-2

BUREAUCRATIC ORGANIZATIONS 8-15 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.

TEST PREP 8-16 What do the terms division of labor and job specialization mean? What are the principles of management outlined by Fayol? What did Weber add to the principles of Fayol?

Centralized Authority -- When decision-making is concentrated at the top level of management. CENTRALIZATION or DECENTRALIZATION? 8-17 LO 8-3 Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters is.

CENTRALIZATION and DECENTRALIZATION 8-18 LO 8-3

SPAN of CONTROL 8-19 LO 8-3 Span of Control -- The optimal number of subordinates a manager supervises or should supervise. When work is standardized, broad spans of control are possible. Appropriate span narrows at higher levels of the organization. The trend today is to reduce middle managers and hire better low-level employees.

ORGANIZATIONAL STRUCTURES 8-20 LO 8-3 Structures determine the way the company responds to employee and customer needs. Tall Organization Structures -- An organizational structure in which the organization chart would be tall because of the various levels of management. Flat Organization Structures -- An organizational structure that has few layers of management and a broad span of control.

FLAT ORGANIZATIONAL STRUCTURE 8-21 LO 8-3

ADVANTAGES and DISADVANTAGES of the DIFFERENT SPANS of CONTROL 8-22 LO 8-3

DEPARTMENTALIZATION 8-23 LO 8-3 Departmentalization -- Divides organizations into separate units. Workers are grouped by skills and expertise to specialize their skills.

ADVANTAGES of DEPARTMENTALIZATION ) Employees develop skills and progress within a department as they master skills. 2) The company can achieve economies of scale. 3) Employees can coordinate work within the function and top management can easily direct activities.

DISADVANTAGES of DEPARTMENTALIZATION 8-25 LO 8-3 1) Departments may not communicate well. 2) Employees may identify with their department’s goals rather than the organization’s. 3) The company’s response to external changes may be slow. 4) People may not be trained to take different managerial responsibilities, instead they become specialists.

WAYS to DEPARTMENTALIZE 8-26 LO 8-3

WAYS to DEPARTMENTALIZE 8-27 LO 8-3

TEST PREP 8-28 Why are organizations becoming flatter? What are some reasons for having a narrow span of control in an organization? What are the advantages and disadvantages of departmentalization? What are the various ways a firm can departmentalize?

FOUR WAYS to STRUCTURE an ORGANIZATION 8-29 LO Line Organizations 2. Line-and-Staff Organizations 3. Matrix-Style Organizations 4. Cross-Functional Self- Managed Teams

LINE ORGANIZATIONS 8-30 LO 8-4 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-and-STAFF ORGANIZATION 8-31

LINE PERSONNEL 8-32 LO 8-4 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 8-33 LO 8-4 Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees.

SAMPLE LINE-and-STAFF ORGANIZATION 8-34 LO 8-4

Matrix Organization -- Specialists from different parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure. MATRIX ORGANIZATIONS 8-35 LO 8-4 Emphasis is on product development, creativity, special projects, communication and teamwork.

SAMPLE MATRIX ORGANIZATION

8-37 LO 8-4

ADVANTAGES of the MATRIX STYLE 8-38 LO 8-4 Managers have flexibility in assigning people to projects. Interorganizational cooperation and teamwork is encouraged. Creative solutions to product development problems are produced. Efficient use of organizational resources.

It’s complex. Employees may be confused about where their loyalty belongs. Good interpersonal skills and cooperative employees are a must. DISADVANTAGES of the MATRIX STYLE 8-39 LO 8-4 It’s a temporary solution to a possible long-term problem. Teams are not permanent.

CROSS-FUNCTIONAL SELF-MANAGED TEAMS 8-40 LO 8-4 Cross-Functional Self-Managed Teams -- Groups of employees from different departments who work together on a long-term basis. 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.

TEST PREP 8-41 What’s the difference between line and staff personnel? What management principle does a matrix-style organization challenge? What’s the main difference between a matrix-style organization’s structure and the use of cross- functional teams?

REAL-TIME BUSINESS 8-42 LO 8-5 Networking -- Using communications technology to link organizations and allow them to work together. Most companies are no longer self-sufficient; they’re part of a global business network. Real Time -- The present moment or actual time in which something takes place.

Benchmarking 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

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

Source: USA Today. WHICH JOBS are most often OUTSOURCED? 8-46 LO 8-5

ADAPTING to MARKET CHANGES 8-47 LO 8-5 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.

KEEP in TOUCH Amazon and its Customer Database 8-48 LO 8-5 AmazonAmazon uses information stored in databases to reach out to customers. The company s customers letting them know about music, DVDs or books they might like based on past purchases. Have you ever received an like this from Amazon or another company? What benefits would a database of personal information, like past purchases, provide Amazon? Do you think these databases are helpful for both companies and consumers or are they an invasion of privacy?

RESTRUCTURING 8-49 LO 8-5 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.

TRADITIONAL and INVERTED ORGANIZATIONS 8-50 LO 8-5

ORGANIZATIONAL CULTURE 8-51 LO 8-6 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.

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

FORMAL ORGANIZATION 8-53 LO 8-6 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. No organization can be effective without formal and informal organization.

Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships. INFORMAL ORGANIZATION 8-54 LO 8-6 Informal organization helps foster camaraderie and teamwork among employees.

LIMITATIONS of INFORMAL ORGANIZATIONS 8-55 LO 8-6 The informal system is too unstructured and emotional on its own. Informal organization may also be powerful in resisting management directives.

GROUP NORMS Examples of Informal Group Norms 8-56 LO 8-6 Do your job but don’t produce more than the rest of your group. Don’t tell off-color jokes or use profanity. Everyone is to be clean and organized at the workstation. Respect and help your fellow group members. Drinking is done off the job – NEVER at work. Source: CIO Magazine, accessed November

TEST PREP 8-57 What is an inverted organization? Why do organizations outsource functions? What is organizational culture?