1. Copyright © 2002 by Harcourt, Inc. All rights reserved. Topic 15 : Business organization and organizational structure Lecturer: Zhu Wenzhong

2. Copyright © 2002 by Harcourt, Inc. All rights reserved. Explain what is organization chart and why it is drawn by a business Explain what is organization chart and why it is drawn by a business Define chains of command and span of control Define chains of command and span of control Explain the difference between centralization and decentralization in an organization Explain the difference between centralization and decentralization in an organization Explain the four major forms of business structure Explain the four major forms of business structure LEARNING GOALS

3. Copyright © 2002 by Harcourt, Inc. All rights reserved. Organization chart A picture of the reporting structure and the division of labor in an organization A picture of the reporting structure and the division of labor in an organization Most organizations will have an organization chart to provide people with this information Most organizations will have an organization chart to provide people with this information © PhotoDisc

4. Copyright © 2002 by Harcourt, Inc. All rights reserved. Help managers to spot communication problems Help managers to spot communication problems Help individuals to see their position and responsibility Help individuals to see their position and responsibility Help people to understand their relationships with other parts of the business Help people to understand their relationships with other parts of the business Help to find who has authority to make decisions Help to find who has authority to make decisions Why do businesses draw an organization chart?

5. Copyright © 2002 by Harcourt, Inc. All rights reserved. Chain of command and span of control The way in which authority is organized within an organization or a set of relationships that indicates who directs which activities and who reports to whom The way in which authority is organized within an organization or a set of relationships that indicates who directs which activities and who reports to whom Short chain of command Short chain of command Long chain of command Long chain of command Chain of command

6. Copyright © 2002 by Harcourt, Inc. All rights reserved. Chain of command and span of control The number of people working under a manager or the number of subordinates reporting directly to a manager The number of people working under a manager or the number of subordinates reporting directly to a manager A narrow span of control A narrow span of control A wide span of control A wide span of control Chain of command Span of control

7. Copyright © 2002 by Harcourt, Inc. All rights reserved. Trend of Flatter organization structure Since 1990s, many businesses have begun to adopt the flatter structures Since 1990s, many businesses have begun to adopt the flatter structures There are fewer layers of middle management There are fewer layers of middle management

8. Copyright © 2002 by Harcourt, Inc. All rights reserved. Question for critical thinking What does a tight span or wide span of control mean? Explain the advantages of disadvantages of them. What does a tight span or wide span of control mean? Explain the advantages of disadvantages of them. © PhotoDisc

9. Copyright © 2002 by Harcourt, Inc. All rights reserved. Centralization and decentralization Centralization and decentralization refer to the degree to which authority is delegated in a business. Centralization and decentralization refer to the degree to which authority is delegated in a business. Complete centralization means that employees have no authority to make decisions. Complete centralization means that employees have no authority to make decisions. Complete decentralization (delegation) means employees have all the authority to make decisions. Complete decentralization (delegation) means employees have all the authority to make decisions. CentralizationCentralization DecentralizationDecentralization

10. Copyright © 2002 by Harcourt, Inc. All rights reserved. Advantages and disadvantages of centralization and decentralization Centralization Decentralization Centralization Decentralization © PhotoDisc Adv.: Tight control Strong leadership Improved communication Disadv.: Less participation incomplete decisions Adv.: Better motivate Reducin senior managers’ burden Benefiting the middle managers Disadv.: Risk of losing control Hard to make decisions as a whole

11. Copyright © 2002 by Harcourt, Inc. All rights reserved. Different forms of business structure The entrepreneurship structure: A structure in which decisions are made centrally by one or two people The entrepreneurship structure: A structure in which decisions are made centrally by one or two people The bureaucratic or pyramid structure: A structure where decisions are shared throughout the organization and employees are each given a role. The bureaucratic or pyramid structure: A structure where decisions are shared throughout the organization and employees are each given a role. The matrix structure: A structure combining people with different skills into project groups or task groups. The matrix structure: A structure combining people with different skills into project groups or task groups. The independence structure: A structure emphasizing the individuals in decisions, also called ‘non-organization’ The independence structure: A structure emphasizing the individuals in decisions, also called ‘non-organization’ © PhotoDisc

12. Copyright © 2002 by Harcourt, Inc. All rights reserved. Question for critical thinking Look at your handout Page 5. Could you tell which type of business structure does A, B, C, and D each belong to? Please explain the advantages and disadvantages of each briefly. Look at your handout Page 5. Could you tell which type of business structure does A, B, C, and D each belong to? Please explain the advantages and disadvantages of each briefly. © PhotoDisc

13. Copyright © 2002 by Harcourt, Inc. All rights reserved. DepartmentalizationDepartmentalization : process of dividing work activities into units within the organization Departmentalization: process of dividing work activities into units within the organization Major forms of departmentalization subdivide work by: Major forms of departmentalization subdivide work by: Product Product Geographic Area Geographic Area Customer Customer Function Function Process Process © PhotoDisc

14. Copyright © 2002 by Harcourt, Inc. All rights reserved. Product departmentalization: Organizes work units based on the goods and services offered Product departmentalization: Organizes work units based on the goods and services offered Product DepartmentalizationDepartmentalization

15. Copyright © 2002 by Harcourt, Inc. All rights reserved. Geographic departmentalization: units organized by geographic region within a country Geographic departmentalization: units organized by geographic region within a country For a multinational firm, units organized by regions throughout the world For a multinational firm, units organized by regions throughout the world Product DepartmentalizationDepartmentalization Geographic

16. Copyright © 2002 by Harcourt, Inc. All rights reserved. Customer departmentalization: organization that offers a variety of goods and services targeted to different types of customers might structure itself based on customers served Customer departmentalization: organization that offers a variety of goods and services targeted to different types of customers might structure itself based on customers served Product DepartmentalizationDepartmentalization Geographic Customer

17. Copyright © 2002 by Harcourt, Inc. All rights reserved. Functional departmentalization: work units organized according to business functions such as finance, marketing, human resources, and production Functional departmentalization: work units organized according to business functions such as finance, marketing, human resources, and production Product DepartmentalizationDepartmentalization Geographic Customer Functional

18. Copyright © 2002 by Harcourt, Inc. All rights reserved. Process departmentalization: units organized by work processes required to complete production of goods Process departmentalization: units organized by work processes required to complete production of goods Product DepartmentalizationDepartmentalization Geographic Customer Functional Process

19. Copyright © 2002 by Harcourt, Inc. All rights reserved. Delegating Work Assignments Delegation: act of assigning activities to subordinates Delegation: act of assigning activities to subordinates Span of management (span of control): number of subordinates a manager can supervise effectively Span of management (span of control): number of subordinates a manager can supervise effectively © PhotoDisc

20. Copyright © 2002 by Harcourt, Inc. All rights reserved. Delegating Work Assignments Centralization: retains decision-making at the top of the management hierarchy Centralization: retains decision-making at the top of the management hierarchy Decentralization: locates decision-making at lower levels Decentralization: locates decision-making at lower levels © PhotoDisc

21. Copyright © 2002 by Harcourt, Inc. All rights reserved. Types of Organization Structures Line organization: establishes a direct flow of authority from the chief executive to subordinates Line organization: establishes a direct flow of authority from the chief executive to subordinates © PhotoDisc

22. Copyright © 2002 by Harcourt, Inc. All rights reserved. Line-and-staff organization: combines the direct flow of authority of a line organization with staff departments that serve, advise, and support the line departments Line-and-staff organization: combines the direct flow of authority of a line organization with staff departments that serve, advise, and support the line departments Types of Organization Structures © PhotoDisc

23. Copyright © 2002 by Harcourt, Inc. All rights reserved. Line manager: interacts directly with the functions of production, finance, or marketing – the functions needed to produce and market goods and services Line manager: interacts directly with the functions of production, finance, or marketing – the functions needed to produce and market goods and services Staff manager: provides information, advice, or technical assistance to aid line managers Staff manager: provides information, advice, or technical assistance to aid line managers Types of Organization Structures © PhotoDisc

24. Copyright © 2002 by Harcourt, Inc. All rights reserved. Types of Organization Structures Committee organization: structure that places authority and responsibility jointly in the hands of a group of individuals rather than a single manager Committee organization: structure that places authority and responsibility jointly in the hands of a group of individuals rather than a single manager Matrix, or project management, structure: links employees from different parts of the organization to work together on specific projects Matrix, or project management, structure: links employees from different parts of the organization to work together on specific projects © PhotoDisc

25. Copyright © 2002 by Harcourt, Inc. All rights reserved. Figure 8.13 The Matrix Organization