1. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.1 CHAPTER 7 Organizing the Business Enterprise

2. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.2 Chapter Outline  What Is Organizational Structure?  The Building Blocks of Organizational Structure  Establishing the Decision-Making Hierarchy  Basic Forms of Organizational Structure  Informal Organization

3. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.3 What Is Organizational Structure? Specification of the jobs to be done within an organization and the ways in which they relate to one another

4. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.4 Determinants of Organization  The organization’s purpose, mission and strategy work together to determine an organization's structure.  Size, technology and changes in the organization’s environment affect structure.

5. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.5 Chain of Command  Organization chart is a diagram depicting a company’s structure and showing employees where they fit into its operations

6. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.6 Chain of Command Chain of command are reporting relationships within a company

7. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.7 The Building Blocks of Organizational Structure  Specialization: determining who will do what  Departmentalization: determining how people performing certain tasks can best be grouped together

8. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.8 Specialization  Job specialization is the process of identifying the specific jobs that need to be done and designating the people who will perform them  Specialization and Growth  Job specialization is a natural part of organizational.

9. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.9 Departmentalization  Customer departmentalization divides a firm according to types of customers likely to buy a given product

10. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.10 Departmentalization  Product departmentalization divides a firm according to specific products or services being created

11. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.11 Departmentalization  Process departmentalization divides a firm according to production processes used to create a good or service

12. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.12 Departmentalization  Geographic departmentalization divides a firm according to areas served by a business

13. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.13 Departmentalization  Functional departmentalization divides a firm according to a group’s functions or activities

14. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.14 Multiple Forms of Departmentalization

15. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.15 Establishing the Decision-Making Hierarchy  Assigning tasks: determining who can make decisions and specifying how they should be made  Performing tasks: implementing decisions that have been made  Distributing authority: determining whether the organization is to be centralized or decentralized

16. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.16 Assigning Tasks: Responsibility and Authority  Responsibility is the duty to perform an assigned task  Authority is the power to make the decisions necessary to complete a task

17. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.17 Performing Tasks: Delegation and Accountability  Delegation is the assignment of a task, responsibility or authority by a manager to a subordinate  Accountability is the liability of subordinates for accomplishing tasks assigned by managers

18. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.18 Fear of Delegating: Small Businesses Reasons why :  Feeling that employees can never do anything as well as you can  Fear that something will go wrong if someone else takes over a job  Lack of time for long-range planning  Sense of being in the dark about industry trends and competitive products

19. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.19 Fear of Delegating: Big Businesses Reasons why:  Fear that subordinates do not really know how to do the job  Fear that a subordinate might “show the manager up” in front of others by doing a superb job  Desire to keep as much control as possible over how things are done  Lack of ability as to how to effectively delegate to others

20. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.20 Distributing Authority: Centralization and Decentralization  Centralized organization is a pattern in which most decision-making authority is held by upper-level management  Decentralized organization is a pattern in which a great deal of decision-making authority is delegated to levels of management at points below the top

21. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.21 Distributing Authority: Tall and Flat Organizations  Flat organizational structure is characteristic of decentralized companies with relatively few layers of management and relatively wide spans of control  Tall organizational structure is characteristic of centralized companies with multiple layers of management and relatively narrow spans of control

22. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.22 Organizational Structure and Span of Control

23. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.23 What Is Span of Control? Number of people supervised by one manager

24. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.24 Three Forms of Authority  Line authority flows up and down the chain of command  Line Department  Staff authority is based on expertise that usually involves counseling and advising line managers  Staff Members  Committee and team authority is granted to committees or work teams involved in a firm’s daily operations

25. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.25 Basic Forms of Organizational Structure  Functional organization is usually structured around basic business functions  Divisional organization relies on product departmentalization  Division  Matrix organization is a structure in which teams are formed and team members report to two or more managers  International organization is a structure developed in response to the need to manufacture, purchase and sell in global markets

26. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.26 Matrix Organization at Martha Stewart

27. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.27 International Division Structure

28. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.28 Organizational Design for the 21 st Century  Boundaryless organization is one in which traditional boundaries and structures are minimized or eliminated altogether  Team organization relies almost exclusively on project-type teams  Virtual organization has little or no formal structure  Learning organization works to integrate continuous improvement with continuous employee learning and development

29. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.29 The Virtual Organization

30. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.30 What Is an Informal Organization? Everyday social interactions among employees that transcend formal jobs and job interrelationships

31. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.31 Formal versus Informal Organizational Systems  Informal groups are groups of people who decide to interact among themselves  Organizational grapevine is an informal communication network that runs through an organization

32. BUSINESS 7e Copyright 2004 Prentice Hall, Inc.32 What Is Intrapreneuring? Process of creating and maintaining the innovation and flexibility of a small- business environment within the confines of a large corporation