Chapter 13 ORGANIZATION STRUCTURE

“Management Talk” “ Our company today is leaner, faster, more flexible and more efficient – in short much more competitive. But our journey is far from finished. Building upon our recent success and momentum, we are determined to drive GM to the next level – to sustained success.” Rick Wagoner, General Motors, Chairman and CEO

“ Our company today is leaner, faster, more flexible and more efficient – in short much more competitive. But our journey is far from finished. Building upon our recent success and momentum, we are determined to drive GM to the next level – to sustained success.”

Rick Wagoner, General Motors, Chairman and CEO

Objectives Read an organizational chart List the four types of organizational structures and explain the advantages and disadvantages of each type Name the factors that affect the type of structure an organization adopts Describe the roles of the chief executive officer and the board of directors

Read an organizational chart

List the four types of organizational structures and explain the advantages and disadvantages of each type

Name the factors that affect the type of structure an organization adopts

Describe the roles of the chief executive officer and the board of directors

Understanding Management General Motors has a long, proud history of being one of the biggest car manufacturers in the world. By the 1980s and 1990s, however, the company was losing profits to newer, more efficient manufacturers. Since then, the company has updated its factories and streamlined its operations in order to reduce costs.

Management Skills How would consolidating six divisions help General Motors improve serviced and cut costs? What are the possible drawbacks of merging the separate divisions? Have you ever been in a situation at home or work where there were too many people in charge of completing a task? What suggestions would you make to simplify the process?

How would consolidating six divisions help General Motors improve serviced and cut costs? What are the possible drawbacks of merging the separate divisions?

Have you ever been in a situation at home or work where there were too many people in charge of completing a task? What suggestions would you make to simplify the process?

Sec. 13.1: Understanding how organizational structures work Can you describe a graphic organizer you have used in school or the classroom? What are the benefits of using them? Why is it important for businesses to have organization charts?

Can you describe a graphic organizer you have used in school or the classroom?

What are the benefits of using them?

Why is it important for businesses to have organization charts?

What You’ll Learn How to read an organizational chart The four main types of organizational structures The difference between staff and line functions The benefits of adopting a matrix or team structure

How to read an organizational chart

The four main types of organizational structures

The difference between staff and line functions

The benefits of adopting a matrix or team structure

Why is this important? “Without an appropriate organizational structure, a business will not succeed”

“Without an appropriate organizational structure, a business will not succeed”

What is an Organization Structure ? A way to organize employees into some kind of structure to meet goals Minimizes confusion Coordinates activities by clearly identifying which individuals are responsible for which tasks

A way to organize employees into some kind of structure to meet goals

Minimizes confusion

Coordinates activities by clearly identifying which individuals are responsible for which tasks

Types of Organizational Structures? Line Structure Line and Staff Structure Matrix Structure Team Structure Organizational Chart : A visual representation of a business’s organizational structure

Line Structure

Line and Staff Structure

Matrix Structure

Team Structure

Organizational Chart :

A visual representation of a business’s organizational structure

Line Structure Authority originates at the top and moves downward Common among small companies Line Functions Functions that contribute directly to company profits Production managers, sales reps, and marketing managers CFO Senior Managers Mid-level Managers Lower-level Managers Non-management Employees

Authority originates at the top and moves downward

Common among small companies

Line Functions

Functions that contribute directly to company profits

Production managers, sales reps, and marketing managers

Line Structure Line Managers Collect and analyze all information needed to carry out their responsibilities Example: Production Managers Hire and fire all of the assembly-line workers in their departments Order all supplies for their department CFO Senior Managers Mid-level Managers Lower-level Managers Non-management Employees

Line Managers

Collect and analyze all information needed to carry out their responsibilities

Example:

Production Managers

Hire and fire all of the assembly-line workers in their departments

Order all supplies for their department

Line and Staff Structure Mid-sized and large companies Other employees hired to help line managers perform activities they cannot Staff Functions Advise and support line functions Staff departments include: legal, human resources, and public relations Help line departments do their jobs Authority is limited to making recommendations to line managers President Vice President, Sales Vice President, Marketing Advertising Sales Personnel Fabrication Assembly

Mid-sized and large companies

Other employees hired to help line managers perform activities they cannot

Staff Functions

Advise and support line functions

Staff departments include: legal, human resources, and public relations

Help line departments do their jobs

Authority is limited to making recommendations to line managers

Matrix Structure Allows employees from different departments to come together temporarily to work on special project teams Provides flexibility to respond quickly to a customer need by creating a team of people who devote all of their time to a project then return to their departments or join a new project team I.E. – Boeing – assigns employees to project teams when it creates to design a new aircraft

Allows employees from different departments to come together temporarily to work on special project teams

Provides flexibility to respond quickly to a customer need by creating a team of people who devote all of their time to a project then return to their departments or join a new project team

I.E. – Boeing – assigns employees to project teams when it creates to design a new aircraft

Matrix Structure Corporate Level Division A Division B Production Engineering Production Engineering Planners and analysts Personnel Finance Personnel Finance Planners and analysts Project Manager Production Group Engineering Group Personnel Group Accounting Group

Team Structure Brings together people with different skills in order to meet a particular objective Belief is that the company will meet customer needs more effectively than traditional structures Senior managers need not approve decisions by lower-level managers Teams have the authority to make final decisions Employee preferred due to its focus on completing a project rather than a task

Brings together people with different skills in order to meet a particular objective

Belief is that the company will meet customer needs more effectively than traditional structures

Senior managers need not approve decisions by lower-level managers

Teams have the authority to make final decisions

Employee preferred due to its focus on completing a project rather than a task

Flat vs. Tall Structures Flat structure : Small number of levels and broad span of management at each level Manager must be able to delegate well Advantages: Great Job Satisfaction More Delegation Increased communication between levels of management Tall Structure : Has many levels with small spans of management Power is centralized on the top levels and there is more employee control Advantages : Greater control Better Performance

Flat structure : Small number of levels and broad span of management at each level

Manager must be able to delegate well

Advantages:

Great Job Satisfaction

More Delegation

Increased communication between levels of management

Tall Structure : Has many levels with small spans of management

Power is centralized on the top levels and there is more employee control

Advantages :

Greater control

Better Performance

Span of Management 5:1 (Seven Levels) FLAT TALL Span of Management 8:1 (Four Levels) 1 2 3 4 1 2 3 4 5 6 7

Extension Activity!!! Design an organizational chart that illustrates the organizational structure of Fremd High School You can interview school staff for information You can navigate the Fremd website to understand departmental structures and how to structure your organizational chart (Line, Line and Staff, Matrix, and/or Team) Use Microsoft Word or Inspiration to build out your organization chart

Design an organizational chart that illustrates the organizational structure of Fremd High School

You can interview school staff for information

You can navigate the Fremd website to understand departmental structures and how to structure your organizational chart (Line, Line and Staff, Matrix, and/or Team)

Use Microsoft Word or Inspiration to build out your organization chart

What Makes an Organization Effective? Knowing Your Customers and Responding to Their Needs To succeed in the business world, companies must change to keep up with customer needs What are some ways that Kodak has done this? (established first simple camera in 1888)

Knowing Your Customers and Responding to Their Needs

To succeed in the business world, companies must change to keep up with customer needs

What are some ways that Kodak has done this? (established first simple camera in 1888)

13. 1: Chapter Summary Companies use organizational charts to visually represent their organizational structures Businesses generally adopt one of the following four organizational structures: line structure, line and staff structure, matrix structure, or team structure

Companies use organizational charts to visually represent their organizational structures

Businesses generally adopt one of the following four organizational structures: line structure, line and staff structure, matrix structure, or team structure

Sec. 13.2: Creating an Organizational Chart List leadership roles or committee appointments that you have had What were the positive and negative experiences that you had in these roles How might a small company’s growth into a large corporation might change its management structure?

List leadership roles or committee appointments that you have had

What were the positive and negative experiences that you had in these roles

How might a small company’s growth into a large corporation might change its management structure?

What You’ll Learn The different ways in which companies organize their departments Why a company’s structure needs to change as the company grows The role of the chief executive officer The role of the board of directors Why is this Important? “Managers both help create and work within organizational structures.”

The different ways in which companies organize their departments

Why a company’s structure needs to change as the company grows

The role of the chief executive officer

The role of the board of directors

Factors Affecting Organizational Structure Size of the business and kinds of products or services it produces Structures will differ between: High-teach company employing 50,000 in eight countries (Motorola, Inc.) Small retail business with just a dozen employees (Bob’s Hardware Store)

Size of the business and kinds of products or services it produces

Structures will differ between:

High-teach company employing 50,000 in eight countries (Motorola, Inc.)

Small retail business with just a dozen employees (Bob’s Hardware Store)

SIZE “ As a company grows, organizational structure must change with it” Organizational Life Cycle Stages Stage 1: Growth through creativity Stage 2: Growth through direction Stage 3: Growth through delegation, coordination, and collaboration

“ As a company grows, organizational structure must change with it”

Organizational Life Cycle Stages

Stage 1: Growth through creativity

Stage 2: Growth through direction

Stage 3: Growth through delegation, coordination, and collaboration

Stage 1: Growth through creativity Entrepreneurs create products or services for which there is a market Business is small in structure Lack formal structures, policies, and objectives Founder is involved in every aspect of the business and makes all the decisions Current Importance An idea that appeals to consumers

Entrepreneurs create products or services for which there is a market

Business is small in structure

Lack formal structures, policies, and objectives

Founder is involved in every aspect of the business and makes all the decisions

Current Importance

An idea that appeals to consumers

Stage 2: Growth through direction Company grows in size Company founder is no longer solely responsible for all decision making Professional managers hired to plan, organize, and staff Managers create written policies, procedures, and plans Rules and systems for hiring, firing, and rewarding employees are implemented Set up: Systems for employees to communicate Financial controls/Budget constraints for departments Formal Rules are on decision-making are formulated

Company grows in size

Company founder is no longer solely responsible for all decision making

Professional managers hired to plan, organize, and staff

Managers create written policies, procedures, and plans

Rules and systems for hiring, firing, and rewarding employees are implemented

Set up:

Systems for employees to communicate

Financial controls/Budget constraints for departments

Formal Rules are on decision-making are formulated

Stage 3: Growth through delegation, coordination, and collaboration Problems occur which include: Company’s structure can become too rigid and decision making becomes too centralized Lower-level employees feel left out of the decision-making process Top executives find themselves too far removed from the customer to make good decisions To combat these problems, stage 3 is implemented which includes: Delegation of duties to lower-level employees in attempt to decentralize Focuses on: Motivating people at lower levels Allows senior executives to devote more of their time to long-term management issues Set up: Systems for employees to communicate Financial controls/Budget constraints for departments Formal Rules are on decision-making are formulated

Problems occur which include:

Company’s structure can become too rigid and decision making becomes too centralized

Lower-level employees feel left out of the decision-making process

Top executives find themselves too far removed from the customer to make good decisions

To combat these problems, stage 3 is implemented which includes:

Delegation of duties to lower-level employees in attempt to decentralize

Focuses on:

Motivating people at lower levels

Allows senior executives to devote more of their time to long-term management issues

Set up:

Systems for employees to communicate

Financial controls/Budget constraints for departments

Formal Rules are on decision-making are formulated

The Changing Nature of a Company’s Organizational Structure How have the needs of Apple Computer changed over time? Stage 1: When a company is young, it depends heavily on technical geniuses who had a brilliant idea for a user-friendly desktop computer. They turned this idea into a multimillion dollar company by introducing the Apple II computer in the 1970s 1976

How have the needs of Apple Computer changed over time?

Stage 1:

When a company is young, it depends heavily on technical geniuses who had a brilliant idea for a user-friendly desktop computer.

They turned this idea into a multimillion dollar company by introducing the Apple II computer in the 1970s

The Changing Nature of a Company’s Organizational Structure Stage 2: As a company grows, it needs managers with excellent managerial skills. To continue to grow, in the 1980s Apple Computer replaced its co-founder, Steven Jobs, with a professional manager. The new CEO, John Sculley, helped introduce the company’s Macintosh Computer 1984

Stage 2:

As a company grows, it needs managers with excellent managerial skills. To continue to grow, in the 1980s Apple Computer replaced its co-founder, Steven Jobs, with a professional manager. The new CEO, John Sculley, helped introduce the company’s Macintosh Computer

The Changing Nature of a Company’s Organizational Structure Stage 3: Managers learn to delegate authority. In 1996 company founder Steven Jobs returned to Apple as interim CEO in an effort to breathe new life into a company that had fallen on hard times. Apple’s organizational structure allowed it to introduce several important products in the 1990s, including the iMac and now in the 21 st Century, the iPod and iPhone.

Stage 3:

Managers learn to delegate authority. In 1996 company founder Steven Jobs returned to Apple as interim CEO in an effort to breathe new life into a company that had fallen on hard times. Apple’s organizational structure allowed it to introduce several important products in the 1990s, including the iMac and now in the 21 st Century, the iPod and iPhone.

Type of Product or Service “ The number of levels within an organization increases as the level of technical complexity increases with producing a product or service”

“ The number of levels within an organization increases as the level of technical complexity increases with producing a product or service”

Organizing a Company into Departments Organizing Departments by Work Functions Production Actual creation of company’s goods or services Marketing Product development, pricing, distribution, sales, and advertising Finance Maintaining a company’s financial statements and obtaining credit so a company can grow Human Resources Hiring employees and placing them in appropriate jobs President Vice President, Marketing Vice President, Production Advertising Manager Sales Manager Engineering Manager Manufacturing Manager Vice President, Finance Market Research Manager Quality Control Manager Accounting Manager Credit Manager

Organizing Departments by Work Functions

Production

Actual creation of company’s goods or services

Marketing

Product development, pricing, distribution, sales, and advertising

Finance

Maintaining a company’s financial statements and obtaining credit so a company can grow

Human Resources

Hiring employees and placing them in appropriate jobs

Organizing a Company into Departments Each function includes various positions Production Engineering, Manufacturing, Quality Control Marketing Advertising, Sales, Market Research Finance Accounting and Credit Advantages: Allows for functional specialization Negative Effects: Conflicts may develop between departments with different goals Production department not concerned about advertising Create managers whose scope is relatively narrow Marketing manager may know a great deal about marketing, but lack skills in other aspects of the business

Each function includes various positions

Production

Engineering, Manufacturing, Quality Control

Marketing

Advertising, Sales, Market Research

Finance

Accounting and Credit

Advantages:

Allows for functional specialization

Negative Effects:

Conflicts may develop between departments with different goals

Production department not concerned about advertising

Create managers whose scope is relatively narrow

Marketing manager may know a great deal about marketing, but lack skills in other aspects of the business

Organizing a Company into Departments Organizing Departments by Product Single manager oversees all activities needed to produce and market a product Advantages: Allows employees to identify with the product rather than with their particular job function Develops a sense of common purpose Helps identify which products are profitable Allows for training executive personnel by letting them experience a broad range of functional activities Negative Effects: Departments could become overly competitive, to the detriment of the company as a whole Activities are duplicated for each division [multiple marketing departments for each different product] President Chemical Oil and Gas Automotive Aerospace Industrial and Technology

Organizing Departments by Product

Single manager oversees all activities needed to produce and market a product

Advantages:

Allows employees to identify with the product rather than with their particular job function

Develops a sense of common purpose

Helps identify which products are profitable

Allows for training executive personnel by letting them experience a broad range of functional activities

Negative Effects:

Departments could become overly competitive, to the detriment of the company as a whole

Activities are duplicated for each division [multiple marketing departments for each different product]

Organizing a Company into Departments Organizing Departments in Other Ways Geographical region North America v Asia Type of Customer Sales to: Governments For-profit businesses Nonprofit organizations

Organizing Departments in Other Ways

Geographical region

North America v Asia

Type of Customer

Sales to:

Governments

For-profit businesses

Nonprofit organizations

Understanding the Role of Company Leadership Committees An organized group of people appointed to consider or decide upon certain matters I.E. – homecoming dance, food drive, blood drive, Grant-A-Wish, etc. Guidelines that managers must set: Clearly define the committee’s function Establish authority figures within a committee Set Clear Goals for members to attain

Committees

An organized group of people appointed to consider or decide upon certain matters

I.E. – homecoming dance, food drive, blood drive, Grant-A-Wish, etc.

Guidelines that managers must set:

Clearly define the committee’s function

Establish authority figures within a committee

Set Clear Goals for members to attain

Understanding the Role of Company Leadership Chief Executive Officer (CEO) The most important executive in a company (Top Executive) Together with other senior managers, the CEO: Makes decisions about meeting the company’s objectives Sets the company’s objectives Determines who fills senior management positions Develops the company’s long-term strategies Attends the company’s annual stockholders’ meeting and answers questions about the company’s activities Takes charge of the company in a crisis Works with the board of directors

Chief Executive Officer (CEO)

The most important executive in a company (Top Executive)

Together with other senior managers, the CEO:

Makes decisions about meeting the company’s objectives

Sets the company’s objectives

Determines who fills senior management positions

Develops the company’s long-term strategies

Attends the company’s annual stockholders’ meeting and answers questions about the company’s activities

Takes charge of the company in a crisis

Works with the board of directors

Understanding the Role of Company Leadership Board of Directors In companies owned by stockholders, approves all major management decisions Meet four to six times a year The legal representative of a company’s stockholders Inside Board Members = Work for the company Outside Board Members = Do not work for the company Examines all major decisions to ensure it is in best interest of company’s stockholders Makes it more difficult for corporate managers to act in ways that benefit them personally at the expense of the company’s owners

Board of Directors

In companies owned by stockholders, approves all major management decisions

Meet four to six times a year

The legal representative of a company’s stockholders

Inside Board Members = Work for the company

Outside Board Members = Do not work for the company

Examines all major decisions to ensure it is in best interest of company’s stockholders

Makes it more difficult for corporate managers to act in ways that benefit them personally at the expense of the company’s owners

13. 2: Chapter Summary The type of structure a company adopts depends on many factors including the company’s size and its products or services Many companies are organized by work functions. Others are organized by product, region, or customer An organization may form a committee to decide upon certain matters Senior management, led by the company’s chief executive officer, initiates or approves all of a company’s major decisions A board of directors approves all major decisions made by corporate management

The type of structure a company adopts depends on many factors including the company’s size and its products or services

Many companies are organized by work functions. Others are organized by product, region, or customer

An organization may form a committee to decide upon certain matters

Senior management, led by the company’s chief executive officer, initiates or approves all of a company’s major decisions

A board of directors approves all major decisions made by corporate management

Math Skills Lindholm Technologies , a high-tech company that specializes in computer graphics, has decided to reorganize its corporate structure into a team structure. By organizing into teams, Lindholm expects to be able to eliminate three mid-level managers, each earning $82,000 a year. It also expects to hire two additional entry-level employees, to be paid about $25,000 a year each. If the cost of the reorganization itself is $75,000, how much can the company expect to save after two years?

Lindholm Technologies , a high-tech company that specializes in computer graphics, has decided to reorganize its corporate structure into a team structure. By organizing into teams, Lindholm expects to be able to eliminate three mid-level managers, each earning $82,000 a year. It also expects to hire two additional entry-level employees, to be paid about $25,000 a year each. If the cost of the reorganization itself is $75,000, how much can the company expect to save after two years?

Assessing Computer Skills Choose a major U.S. company, such as IBM, Apple, Home Depot, Coca-Cola, General Mills, McDonald’s. Using the Internet, find out how the company you selected is organized and identify the top six managers. Also, if you can, obtain a copy of the company’s organizational chart.

Choose a major U.S. company, such as IBM, Apple, Home Depot, Coca-Cola, General Mills, McDonald’s. Using the Internet, find out how the company you selected is organized and identify the top six managers. Also, if you can, obtain a copy of the company’s organizational chart.