1. Structuring Organizations for Today’s Challenges
Chapter 08
Structuring Organizations for Today’s Challenges
McGraw-Hill/Irwin
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

2. LEARNING GOALS
Chapter Eight
Outline the basic principles of organizational management.
Compare the organizational/management theories of Fayol and Weber.
Evaluate the choices managers make in structuring organizations.
Contrast the various organizational/management models.
Identify the benefits of inter-firm cooperation and coordination.
Explain how organizational culture can help businesses adapt to change.
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3. URSULA BURNS Xerox
Profile
Started as a summer intern and moved up through Xerox.
The only female African- American CEO among Fortune’s Top 150 Companies.
Serves on many boards and has been placed on councils by President Obama and Vice- President Biden.
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4. NAME that COMPANY
Chapter Eight
This sport’s equipment company studied the CD industry and learned to use ultraviolet inks to print graphics on skis. It went to the cable television industry to learn how to braid layers of fiberglass and carbon, and adapted that knowledge to make its products.
Name that company!
Company: K2 Skis
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5. REORGANIZATION is for EVERYONE
Everyone’s Reorganizing
LG1
Many companies are reorganizing, especially those in decline. Including:
Auto makers Homebuilders - Banks
Adjusting to changing markets is normal in capitalist economies.
More global competition
Faster technological change
Pressure to protect the environment
Companies must go back to basic organizational principles and firm up the foundation, and attending to service needs of customers.
See Learning Goal 1: Outline the basic principles of organization management.
Changing economic times require businesses to alter their approach via reorganization. Using organizational principles is an important aspect to this reorganization.
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6. STRUCTURING an ORGANIZATION
Building an Organization from the Bottom Up
LG1
Create a division of labor
Set up teams or departments
Allocate resources
Assign tasks
Establish procedures
Adjust to new realities
See Learning Goal 1: Outline the basic principles of organization management.
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7. SAFETY vs. PROFIT (Making Ethical Decisions)
You own a lawn-mowing business and are aware of the hazards in the job. But you’ve seen other companies save money by eliminating safety equipment. You’d also like to make more money.
What do you do?
Save money with less safety precautions?
What are the consequences?
See Learning Goal 1: Outline the basic principles of organization management.
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8. PRODUCTION CHANGED ORGANZIATIONAL DESIGN
The Development of Organization Design
LG2
Mass production of goods led to complexities in organizing businesses.
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.
See Learning Goal 2: Compare the organizational theories of Fayol and Weber.
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9. HENRI FAYOL’S - 14 PRINCIPLES of MANAGEMENT
LG2
Unity of command
Hierarchy of authority
Division of labor
Subordination of individual interests to the general interest
Authority
Degree of centralization
Clear communication channels
Order
Equity
Esprit de corps
See Learning Goal 2: Compare the organizational theories of Fayol and Weber.
This slide presents Fayol’s principles of organization. Fayol published General and Industrial Management in Unity of command and hierarchy of authority suggest that each employee reports to one and only one boss. Management courses throughout the world teach these principles, and organizations are designed accordingly. When these principles become rules, policies, and regulations, they create inflexibility which hampers organizations’ ability to respond quickly to situations. An example of this inflexibility or a slower response time can be seen in FEMA’s response to Hurricane Katrina.
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10. ORGANIZATIONS BASED on FAYOL’S PRINCIPLES
Fayol’s Principles of Management
Video:
LG2
Organizations in which employees have no more than one boss; lines of authority are clear.
Rigid organizations that often do not respond to customers quickly.
See Learning Goal 2: Compare the organizational theories of Fayol and Weber.
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11. MAX WEBER’S PRINCIPLES
Max Weber and Management Theory
Video:
LG2
Employees just need to do what they are told, a Bureaucracy!
In addition to Fayol’s principles, Weber emphasized:
Formal written rules, decision guidelines and detailed records
Consistent procedures, regulations and policies
Competence, not personality in job appointment, and well defined job descriptions
Division of labor and work specialization
Staffing and promotion based on qualification
See Learning Goal 2: Compare the organizational theories of Fayol and Weber.
Weber, a German sociologist and economist, wrote The Theory of Social and Economic Organizations. Weber’s principles were similar to Fayol’s. He emphasized job descriptions, written rules, consistent policies, regulations, and procedures, and staffing and promotions based on qualifications. Weber was in favor of bureaucracy and believed that these principles were necessary for large organizations’ effective functioning. However, in today’s corporate world, these rules and bureaucracy do not necessarily work. Organizations need to respond to customers and other environmental factors quickly which calls for a creative, flexible, and a quick decision making process contrary to a bureaucratic process.
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12. BUREAUCRATIC ORGANIZATIONS
Turning Principles into Organization Design
LG2
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.
See Learning Goal 2: Compare the organizational theories of Fayol and Weber.
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13. HIERARCHIES and COMMAND
Turning Principles into Organization Design
LG2
When following Fayol and Weber, managers control workers.
Chain of Command -- The line of authority that moves from the top of the hierarchy to the lowest level.
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.
See Learning Goal 2: Compare the organizational theories of Fayol and Weber.
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14. PROGRESS ASSESSMENT
Progress Assessment
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?
Division of labor is dividing tasks among workers to complete a job. Job specialization is dividing tasks into smaller jobs.
Fayol’s principles of management are:
-Unity of command
-Hierarchy of authority
-Division of labor
-Subordination of individual interests to the general interest
-Authority
-Degree of centralization
-Clear communication channels
-Order
-Equity
-Esprit de corps
3. Weber added:
-Job descriptions
-Written rules, decision guidelines and detailed records
-Consistent procedures, regulations and policies
-Staffing and promotion based on qualifications.
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15. CENTRALIZATION or DECENTRALIZATION?
Choosing Centralized or Decentralized Authority
CENTRALIZATION or DECENTRALIZATION?
LG3
Centralized Authority -- When decision-making is concentrated at the top level of management.
Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters is.
See Learning Goal 3: Evaluate the choices managers make in structuring organizations.
Centralization can be defined as an organizational structure that focuses on retaining control of authority with higher level managers. One of the disadvantages of this type of management style is slower decisions because of layers of management. Ask the students: What specific problems do you see with this type of management? (Slower decision-making means the company is less responsive to both internal an external customers needs.) Share with the students a simple rule to follow when dealing with centralized authority: Decisions regarding overall company policy and establishment of goals and strategies should be made at the top.
Decentralization is an organizational structure that focuses on delegating authority throughout the organization to middle and lower-level managers. The most significant advantage of this form of management style is the empowerment of the employees. Statistics indicate when delegation is practiced in a company, absenteeism, injuries, loyalty and production improve. Share with the students a simple rule to follow when dealing with decentralized authority: The closer an employee interacts with the customer, the more decentralized the decision-making should be. For example, a customer service manager must have the authority to make a decision that will satisfy a customer immediately, not wait until the home office makes a decision.
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16. Choosing the Appropriate Span of Control
LG3
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.
See Learning Goal 3: Evaluate the choices managers make in structuring organizations.
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17. ORGANIZATIONAL STRUCTURES CHARTS
Choosing Tall versus Flat Organization Structures
ORGANIZATIONAL STRUCTURES CHARTS
LG3
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.
See Learning Goal 3: Evaluate the choices managers make in structuring organizations.
Many organizations have moved from tall organizations to flat organizations in an effort to increase nimbleness in the marketplace.
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18. ORGANIZATIONAL STRUCTURE CHARTS
Flat Organization Structures -- An organizational structure that has few layers of management and a broad span of control.
ORGANIZATIONAL STRUCTURE CHARTS
LG2
See Learning Goal 2: Compare the organizational theories of Fayol and Weber.
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19. DEPARTMENTALIZATION
Weighing the Advantages and Disadvantages of Departmentalization
LG3
Departmentalization -- Divides organizations into separate units.
Workers are grouped by skills and expertise to specialize their skills.
See Learning Goal 3: Evaluate the choices managers make in structuring organizations.
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20. DEPARTMENTALIZATION Advantages
Weighing the Advantages and Disadvantages of Departmentalization
DEPARTMENTALIZATION Advantages
LG3
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.
See Learning Goal 3: Evaluate the choices managers make in structuring organizations.
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21. DEPARTMENTALIZATION Disadvantages
Weighing the Advantages and Disadvantages of Departmentalization
DEPARTMENTALIZATION Disadvantages
LG3
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.
See Learning Goal 3: Evaluate the choices managers make in structuring organizations.
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22. WAYS to DEPARTMENTALIZE
Looking at Alternate Ways to Departmentalize
LG3
See Learning Goal 3: Evaluate the choices managers make in structuring organizations.
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23. WAYS to DEPARTMENTALIZE
Looking at Alternate Ways to Departmentalize
LG3
See Learning Goal 3: Evaluate the choices managers make in structuring organizations.
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24. PROGRESS ASSESSMENT 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?
Over the last 25 years businesses have adopted flatter organizations with fewer layers of management and a broader span of control in order to quickly respond to customer demands. A flatter organization gives lower-level employees the authority and responsibility to make decisions directly affecting customers.
Span of control refers to the number of subordinates a manager supervises. Generally, the span of control narrows at higher levels of the organization, because work becomes less standardized and managers need more face-to face communication.
3. The advantages of departmentalization include: Departmentalization may reduce costs, since employees should be more efficient; employees can develop skills in depth and progress within a department as they master more skills; the company can achieve economies of scale by centralizing all the resources it needs and locating various experts in that particular area; employees can coordinate work within the function; and top management can easily direct and control various departments’ activities. The disadvantages of departmentalization include: Communication is inhibited; employee’s may identify with their department’s goals rather than the organization’s; the company’s response may be slowed by departmentalization; employees tend to be narrow specialists; department members may engage in groupthink and may need input from the outside to become more competitive.
4. An organization can elect to departmentalize in the following ways: customer group, product, functional, geographic, process, and hybrid.
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25. FOUR WAYS to STRUCTURE an ORGANIZATION
Organization Models
LG4
Line Organizations
Line-and-Staff Organizations
Matrix-Style Organizations
Cross-Functional Self- Managed Teams
See Learning Goal 4: Contrast the various organizational models.
Traditional business models, such as line organizations and line-and-staff organizations, are giving way to new structures.
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26. LINE ORGANIZATIONS
Line Organizations
LG4
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.
See Learning Goal 4: Contrast the various organizational models.
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27. LINE PERSONNEL
Line-and-Staff Organizations
LG4
Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees.
Line personnel have authority to make policy decisions.
See Learning Goal 4: Contrast the various organizational models.
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28. STAFF PERSONNEL
Line-and-Staff Organizations
LG4
Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees.
See Learning Goal 4: Contrast the various organizational models.
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29. SAMPLE LINE-and-STAFF ORGANIZATION
Line-and-Staff Organizations
LG4
See Learning Goal 4: Contrast the various organizational models.
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30. MATRIX ORGANIZATIONS
Matrix-Style Organizations
LG4
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.
Emphasis is on product development, creativity, special projects, communication and teamwork.
See Learning Goal 4: Contrast the various organizational models.
The creation of matrix organizations was in response to the inflexibility of other more traditional organizational structures. This structure brings specialists from different parts of the organization to work together temporarily on specific projects.
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31. SAMPLE MATRIX ORGANIZATION
Matrix-Style Organizations
LG4
See Learning Goal 4: Contrast the various organizational models.
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32. MATRIX STYLE Advantages
Matrix-Style Organizations
LG4
Managers have flexibility in assigning people to projects.
Inter-organizational cooperation and teamwork is encouraged.
Creative solutions to product development problems are produced.
Efficient use of organizational resources.
See Learning Goal 4: Contrast the various organizational models.
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33. MATRIX STYLE Disadvantages
Matrix-Style Organizations
LG4
It’s costly and complex.
Employees may be confused about where their loyalty belongs.
Good interpersonal skills and cooperative employees are a must.
It’s a temporary solution to a possible long-term problem.
Teams are not permanent.
See Learning Goal 4: Contrast the various organizational models.
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34. CROSS-FUNCTIONAL SELF-MANAGED TEAMS
LG4
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.
See Learning Goal 4: Contrast the various organizational models.
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35. GOING BEYOND ORGANIZATIONAL BOUNDARIES
LG4
Cross-functional teams work best when the voice of the customer is heard.
Teams that include customers, suppliers and distributors go beyond organizational boundaries.
Government coordinators may assist in sharing market information beyond national boundaries.
See Learning Goal 4: Contrast the various organizational models.
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36. BUILDING SUCCESSFUL TEAMS Important Conditions for Small Teams
Going Beyond Organizational Boundaries
LG4
Clear purpose
Clear goals
Correct skills
Mutual accountability
Shift roles when appropriate
See Learning Goal 4: Contrast the various organizational models.
Important For Small Teams
This slide presents five important conditions for garnering the maximum benefits of small teams, according to Jon Katzenbach, co-author of The Wisdom of Teams.
Ask the students: Which of these five conditions do you believe would be most important in your team experience? Why? (The most critical factor of these five conditions, according to Katzenbach, is a clear performance purpose for the team.)
Source: CIO Magazine,
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37. PROGRESS ASSESSMENT
Progress Assessment
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?
Line personnel are responsible for directly achieving organizational goals. Line personnel include production workers, distribution people, and marketing personnel. Staff personnel advise and assist line personnel in meeting their goals.
The flexibility inherent in the matrix-style organization directly challenge the rigid line and line-and-staff organization structures.
The main difference between matrix-style organization and cross-functional teams is that cross-functional teams tend to be long-lived as compared to the temporary and fluid nature of teams in a matrix-style organization.
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38. Photo Courtesy of: Marc Wathieu
REAL-TIME BUSINESS
Transparency and Virtual Organizations
LG5
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.
See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination.
Photo Courtesy of: Marc Wathieu
Real Time -- The present moment or actual time in which something takes place.
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39. TRANSPARENCY and VIRTUAL CORPORATIONS
Transparency and Virtual Organizations
TRANSPARENCY and VIRTUAL CORPORATIONS
LG5
Transparency -- When a company is so open to other companies that electronic information is shared as if the companies were one.
Virtual Corporation -- A temporary networked organization made up of replaceable firms that join and leave as needed.
See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination.
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40. A VIRTUAL CORPORATION Transparency and Virtual Organizations LG5
See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination.
A Virtual Corporation
This slide illustrates the concept of a virtual corporation as an organizational model that could propel American businesses into the next century.
The theory behind the virtual corporation can be understood by picturing a company stripped to its core competencies. All other business functions will be accomplished by:
Forming joint ventures
Forming temporary alliances with other virtual companies with different areas of expertise
Hiring consulting services
Outsourcing or subcontracting of services
Share with the students some other interesting concepts of a virtual corporation:
On-demand knowledge workers who operate independently
Skill-selling professionals such as engineers, accountants, human resource experts who manage your projects from their homes through worldwide telecommunications
Team-building will change as companies hire individuals with expertise in various areas to solve business problems. As a solution is identified, the team will cease to exist.
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41. BENCHMARKING and CORE COMPETENCIES
LG5
Benchmarking -- Compares an organization’s practices, processes and products against the world’s best.
Core Competencies -- The functions an organization can do as well as or better than any other organization in the world.
K2 Skis researched other companies’ practices in order to create the best possible skis and snowboards.
See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination.
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42. Amazon and its Customer Database
Adapting to Change
KEEP in TOUCH
Amazon and its Customer Database
LG5
Amazon 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?
See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination.
Keep in Touch
Information technology has allowed companies like Amazon to better understand customer needs.
Use the three questions on this slide to start a discussion with students in class.
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43. WHEN TWITTER and FACEBOOK are OLD SCHOOL (Social Media in Business)
People will become so used to having social media at their fingertips, it’ll no longer be news.
There will be new gadgets; some will be improvements, others will be revolutionary.
This can lead to more people working from home and more companies interacting directly with their customer base.
See Learning Goal 1: Outline the basic principles of organization management.
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44. RESTRUCTURING
Restructuring for Empowerment
LG5
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.
See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination.
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45. TRADITIONAL and INVERTED ORGANIZATIONS
Restructuring for Empowerment
LG5
See Learning Goal 5: Identify the benefits of inter-firm cooperation and coordination.
1. The inverted organization structure is an alternative to the traditional management layers. The critical idea behind the inverted organization structure is that the managers’ job is to support and facilitate the jobs of the frontline people, not boss them around.
2. Ask the students: What type of organization structure would they prefer to work under: traditional or inverted? Why?
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46. ORGANIZATIONAL CULTURE
Creating a Change-Oriented Organizational Culture
LG6
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.
See Learning Goal 6: Explain how organizational culture can help businesses adapt to change.
When you search for a job, make sure the organizational culture is one you can thrive in.
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47. INFORMAL ORGANIZATION
Managing the Informal Organization
LG6
Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships.
Informal organization helps foster camaraderie and teamwork among employees.
See Learning Goal 6: Explain how organizational culture can help businesses adapt to change.
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48. LIMITATIONS of INFORMAL ORGANIZATIONS
Managing the Informal Organization
LG6
The informal system is too unstructured and emotional on its own.
Informal organization may also be powerful in resisting management directives.
See Learning Goal 6: Explain how organizational culture can help businesses adapt to change.
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49. GROUP NORMS Examples of Informal Group Norms
Managing the Informal Organization
LG6
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.
See Learning Goal 6: Explain how organizational culture can help businesses adapt to change.
Examples of Informal Group Norms
Group norms are an interesting topic to discuss in teaching organizational structure. This slide illustrates some informal group norms.
Ask students: Have you ever felt pressure to conform to such informal norms? If you gave in to group pressure not to produce more than the rest of the group, did you feel good about yourself? (Focus on the self-gratification feeling of a job well-done and the corresponding compensation.)
Discuss the importance of informal groups in an organization that become somewhat formal themselves (i.e. labor unions).
Source: CIO Magazine.
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50. PROGRESS ASSESSMENT What’s an inverted organization?
Why do organizations outsource functions?
What’s organizational culture?
Some service-oriented organizations have elected to turn the traditional organizational structure upside down. An inverted organization has employees who come into contact with customers at the top of the organization and the chief executive officer at the bottom. A manager’s job is to assist and support frontline people, not tell them what to do.
In the past organizations have often tried to do all functions themselves, maintaining departments for each function including: accounting, finance, marketing, and production. If an organization is not able to efficiently perform the function themselves they will outsource the function. Outsourcing is the process of assigning various functions, such as accounting, production, security, maintenance, and legal work, to an outside firm. The goal is to retain the functions that the organization considers its core competencies.
Organizational or corporate culture is the widely shared values within an organization that create unity and cooperation. Usually the culture of an organization is passed to employees via stories, traditions, and myths.
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