1. PowerPoint Presentation by Charlie Cook The University of West Alabama Business Essentials Ronald J. Ebert Ricky W. Griffin The Business of Managing 22 6e ORGANIZING THE BUSINESS 6 © 2007 Prentice Hall, Inc. All rights reserved.

2. L E A R N I N G O B J E C T I V E S After reading this chapter, you should be able to: 1.Discuss the factors that influence a firm’s organizational structure. 2.Explain specialization and departmentalization as two of the building blocks of organizational structure. 3.Describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy. © 2007 Prentice Hall, Inc. All rights reserved. 6–2

3. L E A R N I N G O B J E C T I V E S (cont’d) After reading this chapter, you should be able to: 4.Explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organizational design. 5.Describe the informal organization and discuss intrapreneuring. © 2007 Prentice Hall, Inc. All rights reserved. 6–3

4. What’s in It for Me? By understanding the material in this chapter, you’ll also be prepared to: – Understand your “place” in the organization that employs you – Be better equipped to create the optimal structure for your own organization as a boss or owner © 2007 Prentice Hall, Inc. All rights reserved. 6–4

5. What Is Organizational Structure? Organizational Structure – The specification of the jobs to be done within an organization and the ways in which those jobs relate to one another Organization Charts – Clarify structure and to show employees where they fit into a firm’s operations – Show the chain of command, or reporting relationships, within a company © 2007 Prentice Hall, Inc. All rights reserved. 6–5

6. © 2007 Prentice Hall, Inc. All rights reserved. 6–6 FIGURE 6.1The Organization Chart

7. Determinants of Organizational Structure © 2007 Prentice Hall, Inc. All rights reserved. 6–7 External Environment Internal Environment Size Strategy Mission Organizational structure is usually quite fluid!

8. The Building Blocks of Organizational Structure Specialization – Division of work: job specialization Departmentalization – Product, process, functional, customer, or geographic Establishment of a decision making hierarchy – Distributing authority: Delegation: assigning tasks Centralization: upper management retains authority Decentralization: lower-level managers make decisions © 2007 Prentice Hall, Inc. All rights reserved. 6–8

9. FIGURE 6.2Multiple Forms of Departmentalization © 2007 Prentice Hall, Inc. All rights reserved. 6–9 Functional Departmentalization Geographical Departmentalization Product Departmentalization

10. Establishing the Decision- Making Hierarchy © 2007 Prentice Hall, Inc. All rights reserved. 6–10 Centralized Organization Decentralized Organization Lower-level managers hold significant decision-making authority Top managers hold most decision-making authority

11. Tall and Flat Organizations Flat Organizational Structure – Common in decentralized organizations – Fewer layers of management – Rapid communication – Wide spans of control Tall Organizational Structure – Common in centralized organizations – Multiple layers of management – Slower communication – Narrower spans of control © 2007 Prentice Hall, Inc. All rights reserved. 6–11

12. The Delegation Process Delegation – The process through which a manager allocates work to subordinates Delegation Entails: – Assignment of responsibility—the duty to perform an assigned task – Granting of authority—the power to make decisions necessary to complete the task – Creation of accountability—the obligation of employees to successfully complete the task © 2007 Prentice Hall, Inc. All rights reserved. 6–12

13. Why Managers Won’t Delegate The fear that subordinates don’t really know how to do the job The desire to keep as much control as possible over how things are done The fear that a subordinate might “show the manager up” in front of others by doing a superb job A simple lack of ability as to how to effectively delegate to others © 2007 Prentice Hall, Inc. All rights reserved. 6–13

14. Forms of Authority Line Authority – The type of operational authority that flows up and down the chain of command Staff Authority – Authority based on special expertise and usually involves counseling and advising line managers Committee and Team Authority – Authority granted to committees or work teams that play central roles in the firm’s daily operations © 2007 Prentice Hall, Inc. All rights reserved. 6–14

15. FIGURE 6.4Line and Staff Organization © 2007 Prentice Hall, Inc. All rights reserved. 6–15

16. Forms of Organizational Structure Functional Structure – Form of business organization in which authority is determined by the relationships between group functions and activities – Used by most small to medium-sized firms structured around basic business functions (marketing, operations, finance) – Advantages: Specialization and smoother internal coordination – Disadvantages: Centralization, poor cross-functional coordination, and lack of accountability © 2007 Prentice Hall, Inc. All rights reserved. 6–16

17. FIGURE 6.5Functional Structure © 2007 Prentice Hall, Inc. All rights reserved. 6–17

18. Forms of Organizational Structure (cont’d) Divisional Structure – Based on departmentalization by product with each division managed as a separate enterprise – Organizations using this approach are typically structured around several divisions—departments that resemble separate businesses in that they produce and market their own products – Advantages: Increased product-focus and internal coordination – Disadvantages: Duplication of efforts and competition between divisions © 2007 Prentice Hall, Inc. All rights reserved. 6–18

19. FIGURE 6.6Divisional Structure © 2007 Prentice Hall, Inc. All rights reserved. 6–19

20. Forms of Organizational Structure (cont’d) Matrix Structure – Organized along two dimensions, instead of just one, by combining, for example, functional and divisional structures – Advantages: Highly flexible, focused on single problem, access to resources and expertise – Disadvantages: Loss of command and control, lack of accountability, impermanent existence © 2007 Prentice Hall, Inc. All rights reserved. 6–20

21. Forms of Organizational Structure (cont’d) International Structures – Developed in response to the need to manufacture, purchase, and sell in global markets – Department, division, or geographic Global Structure – Acquiring resources (including capital), producing goods and services, engaging in research and development, and selling products in whatever local market is appropriate, without any consideration of national boundaries © 2007 Prentice Hall, Inc. All rights reserved. 6–21

22. FIGURE 6.8International Division Structure © 2007 Prentice Hall, Inc. All rights reserved. 6–22

23. Organizational Design for the 21st Century Team Organization – Relies almost exclusively on project-type teams, with little or no underlying functional hierarchy Virtual Organization – Has little or no formal structure, few permanent employees, a very small staff, and a modest administrative facility Learning Organization – Integrates continuous improvement and employee learning and development while transforming itself to respond to changing demands and needs © 2007 Prentice Hall, Inc. All rights reserved. 6–23

24. FIGURE 6.9The Virtual Organization © 2007 Prentice Hall, Inc. All rights reserved. 6–24

25. Informal Organization – Everyday social interactions among employees that transcend formal jobs and job interrelationships – Advantages: May reinforce the formal organization – Disadvantages: Can reinforce office politics that put the interests of individuals ahead of those of the firm May communicate distorted or inaccurate information © 2007 Prentice Hall, Inc. All rights reserved. 6–25

26. Informal Organization (cont’d) Informal Groups – Groups of people who decide to interact among themselves, sometimes about business Organizational Grapevine – The informal communication network that runs throughout the organization Intrapreneuring – Creating and maintaining the innovation and flexibility of a small-business environment within the confines of a large, bureaucratic structure © 2007 Prentice Hall, Inc. All rights reserved. 6–26