Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. CHAPTER 7 Organizing the Business Enterprise

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 7-2 Learning Objectives Discuss the elements that influence a firm’s organizational structure Describe specialization and departmentalization as the building blocks of organizational structure 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 Define the informal organization and discuss intrapreneuring

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 7-3 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 7-4 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 7-5 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 7-6 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 7-7 Profit Centres Department units responsible for their own costs and profits A “mini-business” unit

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 7-8 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 7-9 Customer Departmentalization Industrial vs. Consumer Youth vs. Adult Family vs. Singles

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Product Departmentalization Consumer office supplies vs. business office supplies Photocopiers vs. computers Tax return preparation vs. company financial statements

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Process Departmentalization Groups based on the manufacturing process assembly painting drying inspection

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Geographic Departmentalization Western vs. Eastern region Canadian vs. American North America vs. Europe

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Functional Departmentalization Based on activities performed accounting & finance marketing human resource production

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc The Combination of Various Organizational Structures

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc The Decision Making Hierarchy The decision making hierarchy defines who is responsible for making certain kinds of decisions Three step process assign decision making tasks to employees and determine decision criteria implement decisions distribute authority across the organization using a centralized or a decentralized approach

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Task Assignment Responsibility the duty to complete a task (a cashier can ring up a sales order on a point of purchase terminal) Authority managerial power to make the decisions required to complete the task (a store manager can make decisions about how to treat specific transactions, or can sign to authorize cheques or returns)

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Task Performance Delegation the assignment of a task to a subordinate Accountability the liability that a subordinate has to complete to the best of his/her effort any task that has been delegated to them by a superior

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Distribution of Authority Centralization top managers reserve most of the decision making rights for themselves Decentralization lower- and middle-level managers have some discretion in making decisions on their own

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Span of Control The number of subordinates that a manager is responsible for supervising Wide span- many subordinates Narrow span- very few subordinates Complicated tasks require more supervision and a narrow span of control

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Types of Authority Line authority Staff authority Committee/ team authority

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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 sale of a product whose success is vital to the firm Line employees the “doers” in a department who must make the right decisions in order make the firm a success

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Staff Authority Staff that advise 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc A Line and Staff Organization Chart

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Basic Organizational Structures Functional Divisional Project International

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Functional Structure Oldest & most commonly used method Units are formed based on the functions that must be carried out

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Divisional Structure Divides the organization into separate divisions Each operates as a semi-autonomous unit and profit centre Divisions can be based on key aspects of the firm’s function products customers geography process

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc An Example of a Customer-Division Structure

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Advantages of a Divisional Structure Accommodates change and expansion Increases accountability Develops expertise in the various divisions Encourages training for top management

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Project Organization 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc International Division Structure

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Boundaryless Organization The original structures, or boundaries, within the firm are eliminated Useful to open firm up and facilitate open communication across the company

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Team Organization Depends on functioning teams of workers Little formal structure 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Virtual Organization Has little 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc A Virtual Organization Model Core Organization Contracted Administrative Services Contracted Distribution & Logistics Contracted Manufacturing in Asia Contracted Sales & Marketing

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc The Informal Organization 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Intrapreneuring Maintaining the creativity and innovation 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