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CHAPTER 4
FUNDAMENTALS OF ORGANIZING

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• Identify the advantages and disadvantages of the functional, product, and matrix departmentalization approaches
• Explain the principles of unity of command and span of control
• Describe the difference between line and staff
• Understand how to avoid excessive conflict between line and staff
• Explain the three types of authority found in organizations

LEARNING OBJECTIVES

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• Understand the stages of organization growth
• Distinguish between centralization and decentralization
• Discuss the benefits and costs of downsizing
• Explain the four types of contemporary organizational approaches
• Understand the relationship between management philosophy, strategy, and newer forms of organization

LEARNING OBJECTIVES

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• One-person organization
• Organization with assistants added
• Line organization: Concerned with the primary functions of the firm
• Production, sales, and office administration/ finance
• Line-and-staff organization: Staff positions are added to serve the basic line departments
• Helps accomplish the organization objectives more effectively

STAGES IN GROWTH OF AN ORGANIZATION

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• Quick, decisive action on problems is possible because authority is centralized
• Lines of responsibility and authority are clearly defined
• Evasion of responsibility is minimized and accountability is maximized

ADVANTAGES OF LINE ORGANIZATION

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• Determining how activities are to be grouped
• Types
• Service
• Process
• Territory
• Customer
• Functional
• Product
• Matrix

DEPARTMENTALIZATION

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EXHIBIT 4.7 - FUNCTIONAL DEPARTMENTALIZATION AT THE TOP MANAGEMENT LEVEL

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• Maintains the power and prestige of the major functions
• Creates efficiency through the principles of specialization
• Centralizes the organization’s expertise
• Permits tighter top-management control of the functions
• Minimizes costly duplications of personnel and equipment

ADVANTAGES OF FUNCTIONAL DEPARTMENTALIZATION

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• Responsibility for total performance rests at the top
• Narrow functional focus limits the training of managers to take over the top position
• Coordination between and among functions becomes complex and more difficult as the organization grows in size and scope
• Functional responsibilities are identified by causing subgroup loyalties, identification, and tunnel vision

DISADVANTAGES OF FUNCTIONAL DEPARTMENTALIZATION

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EXHIBIT 4.8 - EXAMPLE OF PRODUCT DEPARTMENTALIZATION

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• Attention can be directed toward specific product lines or services
• Coordination of functions at the product division level is improved
• Profit responsibility can be better placed
• Easier for the organization to obtain or develop executives who have managerial experience in running a total entity

ADVANTAGES OF PRODUCT DEPARTMENTALIZATION

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• More personnel and material resources are required
• Unnecessary duplication of resources and equipment maybe caused
• Greater burden for top management to establish effective coordination and control

DISADVANTAGES OF PRODUCT DEPARTMENTALIZATION

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EXHIBIT 4.9 - EXAMPLE OF MATRIX DEPARTMENTALIZATION

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DISADVANTAGES OF MATRIX DEPARTMENTALIZATION

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• Permits open communication and coordination of activities among the relevant functional specialists
• Its flexibility enables the organization to respond rapidly to change

Advantages

• Lack of clarity and coordination in assigned roles
• Conflict occur when:
• Requirements result in decisions contrary to the philosophy and viewpoint of the home office
• Team members are assigned to more than one project
• Lack of roots for employees due to the temporary nature of assignments

Disadvantages

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• Everyone should report to and be accountable to only one boss
• Reasons for its importance
• Prevents duplication and conflict when orders and instructions are passed down
• Decreases confusion and blame games

UNITY OF COMMAND PRINCIPLE

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• Provides an opportunity for a supervisor and the employees to:
• Learn about each other’s strengths and weaknesses
• Develop supportive relationships
• Realize their individual and group potential in achieving organizational objectives
• Promotes higher morale

UNITY OF COMMAND PRINCIPLE

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• There is a limit to the number of people a person can supervise effectively
• Narrower span of control at the top
• Top-level managers - Solve a variety of different, nonrecurring problems
• Middle managers - Develop long-range plans, work with outside interest groups, and coordinate the activities of the organization
• First-level managers - Are concerned with clearly defined areas of operation

SPAN OF CONTROL PRINCIPLE

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EXHIBIT 4.11 - NARROW, WIDE, AND VERY WIDE SPANS OF CONTROL

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EXHIBIT 4.12 - FACTORS CONTRIBUTING TO A NARROW OR WIDE SPAN OF CONTROL

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• The greater the supervisor’s capacity, the more people he or she can supervise
• General supervision is more effective than close supervision
• New developments in management
• Wider spans of control save the company money

REASONS FOR THE TENDENCY TOWARD WIDER SPANS OF CONTROL

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EXHIBIT 4.13 - FACTORS CONTRIBUTING TO A NARROW OR WIDE SPAN OF CONTROL

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• Line personnel: Carry out the primary activities of a business
• Staff personnel: Have the expertise to assist line people and aid top management
• Reasons for the conflicts between line and staff
• Staff personnel give direct orders to line personnel
• Lack of good human relations practices
• Confusions due to the overlapping of authority and responsibility

RELATIONSHIPS BETWEEN LINE AND STAFF

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• Belief that staff people are not knowledgeable about the conditions at the operating level
• Attempt of the staff people to influence line decisions against line managers’ wishes
• Misuse of staff personnel by the top management
• Narrow viewpoint of the organization by the departments

RELATIONSHIPS BETWEEN LINE AND STAFF

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• Delineating authority
• Types of authority
• Advisory authority: Authority of staff departments to serve and advise line departments
• Line authority: Power to directly command or exact performance from others
• Functional authority: Staff person’s limited line authority over a given function
• Having effective communication between people and between departments

AVOIDING EXCESSIVE LINE-STAFF CONFLICT

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• Decentralization: Extent to which authority is delegated from one unit of the organization to another
• Decentralized organization
• Important decisions related to their units are made by the middle and lower levels of management
• Centralized organization
• Important decisions that concerns all the units or levels are made by the top management

DECENTRALIZATION VERSUS CENTRALIZATION

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FACTORS AFFECTING DECENTRALIZATION

Top-management philosophy

History of the organization’s growth

Geographic location(s)

Quality of managers

Availability of controls

Economy

Mergers, acquisitions, and joint ventures

External business environment

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• Eliminating unnecessary levels of management
• To become leaner and more efficient
• Benefits
• Immediate cost reductions
• Speedier decision making
• Communication improves in all directions
• Increased responsiveness to customers
• Faster product delivery
• Tendency for each level to justify its existence is removed

DOWNSIZING

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• Costs
• Loss of control
• Loss of loyal, effective managers when done in an insensitive manner
• Morale problems and threatened job security for remaining employees
• Increased workloads
• Diminished chances of promotion
• Social costs for the dismissed employees
• Remaining managers must adapt to vague lines of authority and develop team building skills

DOWNSIZING

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• Focusing on the remaining employees by developing strategy of support
• Developing strategic plans for growth and development for the organization
• Developing effective work teams
• Reengineering: Rethinking and redesigning processes to improve the cost, quality, service, and speed
• Can be very expensive

WAYS TO GET BEYOND DOWNSIZING

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• Work units - Functional to process teams
• Jobs - Simple tasks to multidimensional work
• Roles - Controlled to empowered
• Job preparation - Preparation to education
• Focus of compensation - Activity to results

TYPES OF CHANGES OCCURRING AFTER REENGINEERING

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• Advancement criteria - Performance to ability
• Values - Protective to productive
• Managers - Supervisors to coaches
• Organizational structure - Hierarchical to flat
• Executives - Scorekeepers to leaders

TYPES OF CHANGES OCCURRING AFTER REENGINEERING

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EXHIBIT 4.14 - NORDSTORM’S INVERTED PYRAMID

Source: Based on description found in Robert Spector and Patrick D. McCarthy, The Nordstrom Way: The Inside Story of America’s #1 Customer Service Company (New York: Wiley, 1996).

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• Wagon wheel: Organization form with:
• Hub of the wheel - Customers
• Series of spokes - Business functions or teams
• Outer rim - Chief executive and the board

THE WAGON WHEEL AND TEAM STRUCTURES

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• Team structure: Utilizes permanent and temporary cross-functional teams to improve horizontal coordination and cooperation
• Provide speed and flexibility to meet the challenges associated with the dynamic business environments
• Provide the opportunity to use the diverse talents to achieve effective outcomes

THE WAGON WHEEL AND TEAM STRUCTURES

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EXHIBIT 4.16 - EXAMPLE OF A VIRTUAL NETWORK

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• Firms are shifting to increased decentralization, team development, and empowerment due to global competition
• Strategies identified by Michael Porter
• Cost leadership strategy: Attempts to lower costs below competitors by focusing on creating efficiencies within organizational systems
• Differentiation strategy: Gaining a competitive advantage through goods and/or services that are unique or different from the competition

MANAGEMENT PHILOSOPHY, STRATEGY, AND ORGANIZATION

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TYPES OF VARIABLES

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• Determine the course of developments and the results achieved by the organization
• Include independent variables that can be altered or changed by the organization and its management

Causal variables

• Reflect the internal state and health of the organization

Intervening variables

• Dependent variables that reflect the achievements of the organization

End-result variables

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EXHIBIT 4.18 - ORGANIZATIONAL STRATEGY AND STRUCTURE: A FIT PERSPECTIVE

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• Advisory authority
• Cost leadership strategy
• Decentralization
• Departmentalization
• Differentiation strategy
• Downsizing
• Functional authority
• Functional departmentalization
• Inverted pyramid
• Line-and-staff organization
• Line authority

• Line organization
• Line personnel
• Matrix departmentalization
• Network structure
• Product departmentalization
• Reengineering
• Span of control principle
• Staff personnel
• Team structure
• Unity of command principle
• Wagon wheel

IMPORTANT TERMS

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