Chapter 08 Structuring Organizations for Todays Challenges McGraw-Hill/Irwin
Chapter 08 Structuring Organizations for Todays Challenges McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Eight LEARNING GOALS 1. Outline the basic principles of organization management. 2. Compare the organizational theories of Fayol and Weber.
3. Evaluate the choices managers make in structuring organizations. 4. Contrast the various organizational models. 5. Identify the benefits of inter-firm cooperation and coordination. 6. Explain how organizational culture can help businesses adapt to change. 8-2 Profile URSULA BURNS Xerox Started as a summer intern and moved up through Xerox. The only female AfricanAmerican CEO among Fortunes Top 150 Companies. Serves on many boards and
has been placed on councils by President Obama and VicePresident Biden. 8-3 Chapter Eight NAME that COMPANY This sports 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! 8-4 Everyones
Reorganizing LG1 REORGANIZATION is for EVERYONE Many companies are reorganizing, especially those in decline. Including: - Auto makers - Homebuilders - Banks Adjusting to changing markets is normal in capitalist economies. Companies must go back to basic organizational principles and firm up the foundation. 8-5
Building an Organization from the Bottom Up STRUCTURING an ORGANIZATION LG1 Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures Adjust to new realities 8-6 SAFETY vs. PROFIT (Making Ethical Decisions)
You own a lawn-mowing business and are aware of the hazards in the job. But youve seen other companies save money by eliminating safety equipment. Youd also like to make more money. What do you do? Save money with less safety precautions? What are the consequences? 8-7 The Changing Organization THE CHANGING ORGANIZATION LG2
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. 8-8 The Changing Organization LG2 HOW MUCH CHANGES in a DECADE?
What? 2000 2010 Amount of cell phone use 34% 89% Number of active blogs 12,000 141,000,000 Amount of reality shows
4 320 Daily emails sent 12 billion 247 billion Number of hours spent online per week 2.7 18 Number of daily newspapers
1,480 1,302 Number of daily letters mailed 207 billion 175 billion Amount of books published 282,242 1,052,803 iTunes downloads 0
10 billion Percentage of obese Americans 26% 34% Source: NewsWeek, July 26, 2010 and Fast Company, March 2010. 8-9 The Development of Organization Design LG2 PRODUCTION CHANGED ORGANZIATION DESIGN
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. 8-10 Fayols Principles of Organization FAYOLS PRINCIPLES 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 8-11
Fayols Principles of Organization LG2 ORGANIZATIONS BASED on FAYOLS PRINCIPLES Organizations in which employees have no more than one boss; lines of authority are clear. Rigid organizations that often dont respond to customers quickly. 8-12 Max Weber and
Organizational Theory WEBERS PRINCIPLES LG2 Employees just need to do what theyre told. In addition to Fayols principles, Weber emphasized: - Job descriptions - Written rules, decision guidelines and detailed records - Consistent procedures, regulations and policies - Staffing and promotion based on qualifications 8-13
Turning Principles into Organization Design HIERARCHIES and COMMAND LG2 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. 8-14 Turning Principles into Organization Design TYPICAL ORGANIZATION CHART LG2 8-15 Turning Principles into Organization Design
BUREAUCRATIC ORGANIZATIONS 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. 8-16 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? 8-17 Choosing Centralized or Decentralized Authority LG3 CENTRALIZATION or DECENTRALIZATION?
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. 8-18 Choosing the Appropriate Span of Control 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. 8-19 Choosing Tall versus Flat Organization Structures
ORGANIZATIONAL STRUCTURES 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. Flat Organization Structures -- An organizational structure that has few layers of management and a broad span of control. 8-20 Choosing Tall versus Flat Organization
Structures LG3 FLAT ORGANIZATIONAL STRUCTURE 8-21 Weighing the Advantages and Disadvantages of Departmentalization DEPARTMENTALIZATION LG3 Departmentalization -- Divides organizations into separate units.
Workers are grouped by skills and expertise to specialize their skills. 8-22 Weighing the Advantages and Disadvantages of Departmentalization LG3 ADVANTAGES of DEPARTMENTALIZATION 1) Employees develop skills and progress within a department as they master skills. 2) The company can achieve economies of scale.
3) Employees can coordinate work within the function and top management can easily direct activities. 8-23 Weighing the Advantages and Disadvantages of Departmentalization LG3 DISADVANTAGES of DEPARTMENTALIZATION 1) Departments may not communicate well. 2) Employees may identify with their departments goals rather than the organizations.
3) The companys response to external changes may be slow. 4) People may not be trained to take different managerial responsibilities, instead they become specialists. 5) Department members may engage in groupthink and may need outside input. 8-24 Looking at Alternate Ways to Departmentalize WAYS to DEPARTMENTALIZE LG3 8-25
Looking at Alternate Ways to Departmentalize WAYS to DEPARTMENTALIZE LG3 8-26 Progress Assessment 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? 8-27 Organization Models LG4 FOUR WAYS to STRUCTURE an ORGANIZATION 1. Line Organizations 2. Line-and-Staff Organizations 3. Matrix-Style Organizations 4. Cross-Functional SelfManaged Teams 8-28
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. 8-29
Line-and-Staff Organizations LINE PERSONNEL 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. 8-30 Line-and-Staff Organizations
STAFF PERSONNEL 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. 8-31 Line-and-Staff Organizations LG4 SAMPLE LINE-and-STAFF ORGANIZATION
8-32 Matrix-Style Organizations MATRIX 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. 8-33 Matrix-Style Organizations LG4 SAMPLE MATRIX ORGANIZATION 8-34 Matrix-Style Organizations LG4 ADVANTAGES of the MATRIX STYLE
Managers have flexibility in assigning people to projects. Interorganizational cooperation and teamwork is encouraged. Creative solutions to product development problems are produced. Efficient use of organizational resources. 8-35 Matrix-Style Organizations LG4 DISADVANTAGES of the MATRIX STYLE Its costly and complex. Employees may be confused about where their
loyalty belongs. Good interpersonal skills and cooperative employees are a must. Its a temporary solution to a possible long-term problem. Teams are not permanent. 8-36 Cross-Functional Self-Managed Teams LG4 CROSS-FUNCTIONAL SELF-MANAGED TEAMS Cross-Functional Self-Managed Teams -- who
work together on a long-term basis. Groups of employees from different departments 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. 8-37 Going Beyond Organizational Boundaries LG4 GOING BEYOND ORGANIZATIONAL BOUNDARIES 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. 8-38 Going Beyond Organizational Boundaries LG4
BUILDING SUCCESSFUL TEAMS Important Conditions for Small Teams Clear purpose Clear goals Correct skills Mutual accountability Shift roles when appropriate Source: CIO Magazine, www.cio.com. 8-39 Progress Assessment PROGRESS ASSESSMENT Whats the difference between line and staff
personnel? What management principle does a matrix-style organization challenge? Whats the main difference between a matrixstyle organizations structure and the use of cross-functional teams? 8-40 Transparency and Virtual Organizations REAL-TIME BUSINESS LG5 Networking -- Using communications technology to link organizations and
allow them to work together. Most companies are no longer self-sufficient; theyre part of a global business network. Photo Courtesy of: Marc Wathieu Real Time -- The present moment or actual time in which something takes place. 8-41 Transparency and Virtual Organizations LG5 TRANSPARENCY and VIRTUAL
CORPORATIONS 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. 8-42 Transparency and Virtual Organizations A VIRTUAL CORPORATION LG5
8-43 WHEN YOUR WORKERS WORK for SOMEONE ELSE (Spotlight on Small Business) Douglas Pick launched DAP World from his apartment, but couldnt produce all that was needed. Started working with New Horizons to help produce and ship his earplugs. Now he sells millions of earplugs to major outlets like Walgreens and Rite Aid. 8-44
Benchmarking and Core Competencies LG5 BENCHMARKING and CORE COMPETENCIES Benchmarking -- Compares an organizations practices, processes and products against the worlds 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.
8-45 Benchmarking and Core Competencies LG5 BENEFITS and CONCERNS of HEALTHCARE OUTSOURCING Benefits Concerns Provides enough staff to operate the facility Lower employee morale
Cost savings Liability Should patients be informed Confidentiality and security Source: Healthcare Financial Management. 8-46 Benchmarking and Core Competencies LG5 WHICH JOBS will be OUTSOURCED NEXT?
Source: USA Today. 8-47 Adapting to Change LG5 ADAPTING to MARKET CHANGES Change isnt easy. Employees like to do things the way they always have. Get rid of old, inefficient facilities and equipment. Use the Internet to get to know your customers and sell directly to them.
8-48 Adapting to Change LG5 KEEP in TOUCH Amazon and its Customer Database Amazon uses information stored in databases to reach out to customers. The company emails customers letting them know about music, DVDs or books they might like based on past purchases. Have you ever received an email 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? 8-49 WHEN TWITTER and FACEBOOK are OLD SCHOOL (Social Media in Business) People will become so used to having social media at their fingertips, itll 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. 8-50 Restructuring for
Empowerment RESTRUCTURING 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 managers job is to assist and support frontline workers, not boss them. 8-51 Restructuring
for Empowerment LG5 TRADITIONAL and INVERTED ORGANIZATIONS 8-52 Creating a Change-Oriented Organizational Culture 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. 8-53 Managing the Informal Organization FORMAL ORGANIZATION LG6
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. 8-54 Managing the Informal Organization 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. 8-55 Managing the Informal Organization LG6 LIMITATIONS of INFORMAL ORGANIZATIONS
The informal system is too unstructured and emotional on its own. Informal organization may also be powerful in resisting management directives. 8-56 Managing the Informal Organization LG6 GROUP NORMS Examples of Informal Group Norms
Do your job but dont produce more than the rest of your group. Dont 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. Source: CIO Magazine. 8-57 Progress Assessment PROGRESS ASSESSMENT What is an inverted organization? Why do organizations outsource functions? What is organizational culture?
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