1. * * Chapter Eight Adapting Organizations to Today’s Markets McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. * * Building an Organization from the Bottom Up Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures Adjust to new realities STRUCTURING an ORGANIZATION LG1 8-2

3. * * 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. THE CHANGING ORGANIZATION LG2 8-3

4. * * The Development of Organization Design Mass production of goods led to complexities in organizing businesses. PRODUCTION CHANGED ORGANZIATION DESIGN LG2 Economies of Scale -- Companies can reduce their production costs by purchasing raw materials in bulk. The average cost of goods decrease as production levels rise. 8-4

5. * * Fayol’s Principles of Organization Unity of command Hierarchy of authority Division of labor Subordination of individual interests to the general interest Authority FAYOL’S PRINCIPLES LG2 Degree of centralization Clear communication channels Order Equity Esprit de corps 8-5

6. * * Max Weber and Organizational Theory 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. WEBER’S PRINCIPLES LG2 8-6

7. * * Turning Principles into Organization Design 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. HIERARCHIES and COMMAND LG2 8-7

8. * * Turning Principles into Organization Design LG2 TYPICAL ORGANIZATION CHART 8-8

9. * * Turning Principles into Organization Design 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. BUREAUCRATIC ORGANIZATIONS LG2 8-9

10. * * Choosing Centralized or Decentralized Authority Centralized Authority -- When decision-making is concentrated at the top level of management. CENTRALIZATION or DECENTRALIZATION? LG3 Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters. 8-10

11. * * Choosing the Appropriate Span of Control 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. SPAN of CONTROL LG3 8-11

12. * * Choosing Tall versus Flat Organization Structures 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. ORGANIZATIONAL STRUCTURES LG3 8-12

13. * * Choosing Tall versus Flat Organization Structures FLAT ORGANIZATIONAL STRUCTURE LG3 8-13

14. * * Weighing the Advantages and Disadvantages of Departmentalization Departmentalization -- Divides organizations into separate units. Workers are grouped by skills and expertise to specialize their skills. DEPARTMENTALIZATION LG3 8-14

15. * * Weighing the Advantages and Disadvantages 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. ADVANTAGES of DEPARTMENTALIZATION LG3 8-15

16. * * Weighing the Advantages and Disadvantages of Departmentalization Departments may not communicate well. Employees may identify with their department’s goals rather than the organization’s. The company’s response to external changes may be slow. 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. DISADVANTAGES of DEPARTMENTALIZATION LG3 8-16

17. * * Organization Models 1. Line Organizations 2. Line-and-Staff Organizations 3. Matrix-Style Organizations 4. Cross-Functional Self-Managed Teams FOUR WAYS to STRUCTURE an ORGANIZATION LG4 8-17

18. * * 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 ORGANIZATIONS LG4 8-18

19. * * Line-and-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. LINE PERSONNEL LG4 8-19

20. * * Line-and-Staff Organizations Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees. STAFF PERSONNEL LG4 8-20

21. * * Line-and-Staff Organizations LG4 SAMPLE LINE-and-STAFF ORGANIZATION 8-21

22. * * Creating a Change-Oriented Organizational Culture Organizational or Corporate Culture -- The widely shared values within an organization that foster unity and cooperation to achieve common goals ORGANIZATIONAL CULTURE LG6 8-22

23. * * Managing the Informal 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. No organization can be effective without formal and informal organization. FORMAL ORGANIZATION LG6 8-23

24. * * Managing the Informal Organization Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships. INFORMAL ORGANIZATION LG6 Informal organization helps foster camaraderie and teamwork among employees. 8-24