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Chapter 7 Creating a Flexible Organization

LEARNING OBJECTIVES

7-1 Understand what an organization is and identify its characteristics.

7-2 Explain why job specialization is important.

7-3 Identify the various bases for departmentalization.

7-4 Explain how decentralization follows from delegation.

7-5 Understand how the span of management describes an organization.

7-6 Describe the four basic forms of organizational structure.

7-7 Describe the effects of corporate culture.

7-8 Understand how committees and task forces are used.

7-9 Explain the functions of the informal organization and the grapevine in a business.

What Is an Organization? (slide 1 of 3)

Organization – a group of two or more people working together to achieve a common set of goals

Examples: a neighborhood dry cleaner owned and operated by a husband-and-wife team, IBM, Home Depot

What Is an Organization? (slide 2 of 3)

Organization chart – a diagram that represents the positions and relationships within an organization

Chain of command – the line of authority that extends from the highest to the lowest levels of an organization

The chain of command can be short or long, depending on the organization’s size.

Not everyone who works for an organization is part of the direct chain of command, such as those who hold advisory, or staff, positions.

FIGURE 7-1 A Typical Corporate Organization Chart

What Is an Organization? (slide 3 of 3)

Most smaller organizations find organization charts useful.

They clarify positions and relationships for everyone in the organizational structure.

However, many large organizations, such as ExxonMobil, Kellogg’s, and Procter & Gamble, do not maintain complete, detailed charts.

It is difficult to chart even a few dozen positions accurately, much less the thousands that characterize larger firms.

Larger organizations are almost always changing parts of their structure; thus, an organization chart would be outdated before it was completed.

Job Design

Job design – structuring the tasks and activities required to accomplish a firm’s objectives into specific jobs so as to foster productivity and employee satisfaction

Job Specialization

Job specialization – the separation of all organizational activities into distinct tasks and the assignment of different tasks to different people

The rationale behind job specialization:

Some job specialization is necessary in every organization because the “job” of most organizations is too large for one person to handle.

When a worker has to learn one specific, highly specialized task, that individual can learn it quickly and perform it efficiently.

A worker repeating the same job does not lose time changing operations.

The more specialized the job, the easier it is to design specialized equipment.

The more specialized the job, the easier the job training.

The most significant drawback of job specialization is the boredom and dissatisfaction employees may feel when repeating the same job.

Alternatives to Job Specialization

Job rotation – the systematic shifting of employees from one job to another

Example: A worker may be assigned a different job every week for a four-week period and then return to the first job in the fifth week.

Helps workers:

Stay interested in their jobs

Develop new skills

Identify new roles where they may want to focus their energies in the future

Job enlargement

Job enrichment

Departmentalization

Departmentalization – the process of grouping jobs into manageable units

The most common bases for organizing a business into effective departments are by:

Function

Product

Location

Customer

By Function

Departmentalization by function – grouping jobs that relate to the same organizational activity

Example: All marketing personnel are grouped together in the marketing department, all production personnel in the production department, and so on.

Most smaller and newer organizations departmentalize by function.

Advantages:

Simplified supervision

Easy coordination

Disadvantages:

Slow decision making

Tends to emphasize the department over the organization as a whole

By Product

Departmentalization by product – grouping activities related to a particular product or service

This approach is used often by older and larger firms that produce and sell a variety of products.

Advantages:

Easier decision making

Provides for the integration of all activities associated with each product

Disadvantages:

Causes some duplication of specialized activities between departments

Tends to emphasize the product over the organization as a whole

By Location

Departmentalization by location – grouping activities according to the defined geographic area in which they are performed

Departmental areas may range from whole countries to regions within countries to areas of several city blocks.

Example: Ford has divisions for the Americas, Europe, Asia, Asia Pacific and Africa, and China.

Advantage:

Allows the organization to respond readily to the unique demands or requirements of different locations

Disadvantage:

Often requires a large administrative staff and an elaborate control system to coordinate operations across many locations

By Customer

Departmentalization by customer – grouping activities according to the needs of various customer populations

Advantage:

Allows the firm to deal efficiently with unique customers or customer groups

Disadvantage:

Requires a larger-than-usual administrative staff

Combinations of Bases

Many organizations use a combination of departmentalization bases.

Example: Toyota has product divisions such as R&D and Engineering, Compact Car Company, Mid-size Vehicle Company, CV Company, Lexus International Company, Power Train Company, and Connected Company, as well as divisions based on locations.

FIGURE 7-2 Multibase Departmentalization for New-Wave Fashions, Inc.

Delegation, Decentralization, and Centralization

Delegation – assigning part of a manager’s work and power to other workers

The degree of centralization or decentralization of authority is determined by the overall pattern of delegation within the organization.

Delegation of Authority (slide 1 of 2)

Steps in Delegation

The delegation process generally involves three steps.

The manager must assign responsibility.

Responsibility – the duty to do a job or perform a task

The manager must grant authority.

Authority – the power, within an organization, to accomplish an assigned job or task

The manager must create accountability.

Accountability – the obligation of a worker to accomplish an assigned job or task

FIGURE 7-3 Steps in the Delegation Process

Delegation of Authority (slide 2 of 2)

Barriers to Delegation

For several reasons, managers may be unwilling to delegate work.

The manager does not trust the employee to complete the task.

The manager fears the employee will perform exceptionally and attract the notice of higher-level managers.

The manager may be disorganized and is not able to plan and assign work effectively.

Decentralization of Authority (slide 1 of 2)

Decentralized organization – an organization in which management consciously attempts to spread authority widely in the lower levels of the organization

Example: Berkshire Hathaway

Centralized organization – an organization that systematically works to concentrate authority at the upper levels of the organization

Example: UPS

Decentralization of Authority (slide 2 of 2)

Factors that influence the extent of decentralization:

The external environment in which the firm operates

The more complex and unpredictable this environment, the more likely it is that top management will let lower-level managers make important decisions because lower-level managers are closer to the problems.

The nature of the decision itself

The riskier or more important the decisions that have to be made, the greater is the tendency to centralize decision making.

The abilities of lower-level managers

If these managers do not have strong decision-making skills, top managers will be reluctant to decentralize.

Traditional practice

A firm that has practiced centralization or decentralization is likely to maintain that same posture in the future.

The Span of Management (slide 1 of 2)

Span of management (or span of control) – the number of workers who report directly to one manager

Wide and Narrow Spans of Management

A wide span of management exists when a manager has a larger number of subordinates.

A narrow span exists when the manager has only a few subordinates.

FIGURE 7-4 The Span of Management

The Span of Management (slide 2 of 2)

Organizational Height

Organizational height – the number of layers, or levels, of management in a firm

If the span of management is wide, fewer levels are needed, and the organization is flat.

If the span of management is narrow, more levels are needed, and the organization is tall.

Forms of Organizational Structure

Line structure

Line-and-staff structure

Matrix structure

Network structure

The Line Structure

Line structure – an organizational structure in which the chain of command goes directly from person to person throughout the organization

A straight line could be drawn down through the levels of management, from the chief executive down to the lowest level in the organization.

Line managers – a position in which a person makes decisions and gives orders to subordinates to achieve the organization’s goals

Advantage:

Line managers can make decisions quickly with direct accountability because the decision maker only has one supervisor to report to.

Disadvantage:

Line managers are responsible for many activities, and therefore must have a wide range of knowledge about all of them.

Line structures are not very effective in medium- or large-sized organizations.

The Line-and-Staff Structure (slide 1 of 3)

Line-and-staff structure – an organizational structure that utilizes the chain of command from a line structure in combination with the assistance of staff managers

Staff managers – a position created to provide support, advice, and expertise within an organization

FIGURE 7-5 Line and Staff Managers

The Line-and-Staff Structure (slide 2 of 3)

Line managers have line authority.

Line authority – the ability to make decisions and issue directives relating to the organization’s goals

Staff managers have either advisory authority or functional authority.

Advisory authority – the expectation that line managers will consult the appropriate staff manager when making decisions

Functional authority – the authority of staff managers to make decisions and issue directives about their areas of expertise

Staff managers in a line-and-staff structure tend to have access to more information than line managers.

The Line-and-Staff Structure (slide 3 of 3)

Conflict between line managers and staff managers is fairly common.

Ways to minimize the likelihood of conflict:

Integrate line and staff managers into one team.

Ensure that the areas of responsibility of line and staff managers are clearly defined.

Hold both line and staff managers accountable for the results of their activities.

The Matrix Structure (slide 1 of 2)

Matrix structure – an organizational structure that combines vertical and horizontal lines of authority, usually by superimposing product departmentalization on a functionally departmentalized organization

Cross-functional team – a team of individuals with varying specialties, expertise, and skills that are brought together to achieve a common task

Project manager – the manager in charge of a cross-functional team

Any individual who is working with the team reports to both the project manager and the individual’s superior in the functional department.

Cross-functional team projects may be temporary and disbanded once the mission is accomplished, or they may be permanent.

FIGURE 7-6 A Matrix Structure

The Matrix Structure (slide 2 of 2)

Advantages:

Adds flexibility

Increases productivity

Raises morale

Nurtures creativity and innovation

Personal development experienced by employees

Disadvantages:

Chain of command conflicts

May take longer to resolve problems and issues

Personality clashes

Poor communication

Undefined individual roles

Unclear responsibilities

Difficulties in finding ways to reward individual and team performance simultaneously

Expensive to maintain

The Network Structure

Network structure (virtual organization) – an organizational structure in which administration is the primary function, and most other functions are contracted out to other firms

This type of organization has a few permanent employees consisting of top management and hourly clerical workers.

Leased facilities and equipment, as well as temporary workers, are increased or decreased as the organization’s needs change.

Advantages:

Flexibility that allows organizations to adjust quickly to changes

More likely to survive the loss of an important member

Disadvantages:

Lack of control over quality of work

Low morale and high turnover among hourly workers

Lack of a clear hierarchy

Corporate Culture

Corporate culture – the inner rites, rituals, heroes, and values of a firm

An organization’s culture has a powerful influence on how employees think and act.

It also can determine public perception of the organization.

Common corporate culture indicators:

Physical setting (building or office layouts)

What the company says about its corporate culture (in advertising or news releases)

How the company greets guests (formal or informal reception areas)

How employees spend their time (working alone in an office or working with others)

FIGURE 7-7 Types of Corporate Culture

Committees and Task Forces (slide 1 of 2)

Ad hoc committee – a committee created for a specific short-term purpose

Example: a committee established for reviewing the firm’s employee benefits plan

Standing committee – a relatively permanent committee charged with performing some recurring task

Example: a budget review committee established to review departmental budget requests on an ongoing basis

Task force – a committee established to investigate a major problem or pending decision

Example: a committee established to assess the pros and cons of a merger with another company

Committees and Task Forces (slide 2 of 2)

Advantages:

Different knowledge and skills brought by members to the task at hand

Tend to make more accurate decisions

Tend to transmit their results through the organization more effectively

Disadvantages:

Longer deliberations

The possibility of unnecessary compromise

The possibility of domination by one person

The Informal Organization and the Grapevine

Informal organization – the pattern of behavior and interaction that stems from personal rather than official relationships

Embedded with every informal organization are informal groups and the notorious grapevine.

Informal group – a group created by the members themselves to accomplish goals that may or may not be relevant to an organization

Informal groups can be powerful forces in organizations, exerting both positive influences (e.g., boosting morale and job satisfaction) and negative influences (e.g., causing disagreement and conflict).

Grapevine – the informal communications network within an organization