BA 100 Chapter 8

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CHAPTER 8
Structuring
Organizations for
Today’s
Challenges

2. ©McGraw-Hill Education.
LEARNING OBJECTIVES
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.

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JENNA LYONS
J. Crew
• Joined J. Crew in 1990 as a junior
designer.
• Worked her way up the ladder by
emphasizing her commitment to
quality.
• Her management style is
compassionate and understanding.
Photocredit:©DDipasupil/FilmMagic/GettyImages

4. ©McGraw-Hill Education.
NAME that COMPANY
This company maintains strict written rules and
decision guidelines. Those rules enable the firm to
deliver packages quickly because employees don’t
have to pause to make decisions – procedures are
clearly spelled out for them.
Name that company!

5. ©McGraw-Hill Education.
REORGANIZATION is for
EVERYONE LO 8-1
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.

6. ©McGraw-Hill Education.
STRUCTURING an ORGANIZATION LO 8-1
• Create a division of
labor
• Set up teams or
departments
• Allocate resources
• Assign tasks
• Establish procedures
• Adjust to new realities
Photo credit: ©John Lund/Marc Romanelli/Blend Images LLC

7. ©McGraw-Hill Education.
WOULD YOU SACRIFICE
SAFETY for PROFITS?
You own a lawn-mowing business and are aware of
the hazards in the job. But you’ve seen other
companies save money by eliminating safety
equipment. You’d also like to make more money.
What do you do?
Save money with
less safety precautions?
What are the consequences?
Photo credit: © Huntstock, Inc./age fotostock RF

8. ©McGraw-Hill Education.
THE CHANGING ORGANIZATION LO 8-2
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.

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HOW MUCH CHANGES
in a DECADE? LO 8-2
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: Fast Company, www.fastcompany.com, accessed March 2014.

10. ©McGraw-Hill Education.
PRODUCTION CHANGED
ORGANIZATION DESIGN LO 8-2
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.
Mass production of goods led
to complexities in organizing
businesses.
Photo credit: ©DreamPictures/Shannon Faulk/Blend Images LLC

11. ©McGraw-Hill Education.
FAYOL’S PRINCIPLES LO 8-2
• 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

12. ©McGraw-Hill Education.
ORGANIZATIONS BASED on
FAYOL’S PRINCIPLES LO 8-2
Organizations in which
employees have no more than
one boss; lines of authority are
clear.
Rigid organizations that often
don’t respond to customers
quickly.
Photo credit: Public Domain

13. ©McGraw-Hill Education.
WEBER’S PRINCIPLES LO 8-2
Employees just need to do what
they’re told.
In addition to Fayol’s principles,
Weber emphasized:
- Job descriptions
- Written rules, decision guidelines
and detailed records
- Consistent procedures, regulations
and policies
- Staffing and promotion based on
qualifications
Photo credit: © Interfoto/Alamy Images

14. ©McGraw-Hill Education.
HIERARCHIES and COMMAND LO 8-2
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.

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ORGANIZATIONAL CHARTS LO 8-2
Organization Chart -- A visual device that shows
relationships among people and divides the
organization’s work; it shows who reports to whom.
Photocredit:©ImageSource,allrightsreserved.

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TYPICAL ORGANIZATION CHART LO 8-2
Jump to Appendix 1 for long image description

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BUREAUCRATIC ORGANIZATIONS LO 8-2
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.

18. ©McGraw-Hill Education.
TEST PREP
1. What do the terms division of labor and job
specialization mean?
2. What are the principles of management outlined
by Fayol?
3. What did Weber add to the principles of Fayol?

19. ©McGraw-Hill Education.
CENTRALIZATION or
DECENTRALIZATION? LO 8-3
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.
Photo credit: (c) Blend Images/AGE fotostock

20. ©McGraw-Hill Education.
CENTRALIZATION and
DECENTRALIZATION
Jump to Appendix 2 for long image description
LO 8-3

21. ©McGraw-Hill Education.
SPAN of CONTROL LO 8-3
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.

22. ©McGraw-Hill Education.
ORGANIZATIONAL STRUCTURES LO 8-3
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.

23. ©McGraw-Hill Education.
FLAT ORGANIZATIONAL
STRUCTURE LO 8-3

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ADVANTAGES and DISADVANTAGES of the
DIFFERENT SPANS of CONTROL
Jump to Appendix 3 for long image description
LO 8-3

25. ©McGraw-Hill Education.
DEPARTMENTALIZATION LO 8-3
Departmentalization -- Divides organizations into
separate units.
Workers are grouped by skills and expertise to
specialize their skills.
Photo credit: © Amy Sancetta/AP Images

26. ©McGraw-Hill Education.
ADVANTAGES of
DEPARTMENTALIZATION LO 8-3
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.

27. ©McGraw-Hill Education.
DISADVANTAGES of
DEPARTMENTALIZATION LO 8-3
1. Departments may not communicate well.
2. Employees may identify with their department’s goals
rather than the organization’s.
3. The company’s 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.

28. ©McGraw-Hill Education.
WAYS to DEPARTMENTALIZE 1 of 2 LO 8-3
Jump to Appendix 4 for long image description

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WAYS to DEPARTMENTALIZE 2 of 2 LO 8-3
Jump to Appendix 5 for long image description

30. ©McGraw-Hill Education.
TEST PREP 1 of 3
1. Why are organizations becoming flatter?
2. What are some reasons for having a narrow span
of control in an organization?
3. What are the advantages and disadvantages of
departmentalization?
4. What are the various ways a firm can
departmentalize?

31. ©McGraw-Hill Education.
FOUR WAYS to STRUCTURE an
ORGANIZATION LO 8-4
1. Line Organizations
2. Line-and-Staff Organizations
3. Matrix-Style Organizations
4. Cross-Functional Self-
Managed Teams
Photocredit:©DaveandLesJacobs/LloydDobbie/BlendImagesLLC

32. ©McGraw-Hill Education.
LINE ORGANIZATIONS LO 8-4
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.

33. ©McGraw-Hill Education.
LINE PERSONNEL LO 8-4
Line Personnel -- Workers responsible for directly
achieving organizational goals, and include production,
distribution and marketing employees.
Line personnel have authority to make policy
decisions.

34. ©McGraw-Hill Education.
STAFF PERSONNEL LO 8-4
Staff Personnel -- Employees
who advise and assist line
personnel in meeting their goals,
and include marketing research,
legal advising, IT and human
resource employees.
Photocredit:©ImageSource,allrightsreserved.

35. ©McGraw-Hill Education.
SAMPLE LINE-and-STAFF
ORGANIZATION LO 8-4
Jump to Appendix 6 for long image description

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MATRIX ORGANIZATIONS LO 8-4
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.
Photo credit: © Sam Edwards/age fotostock

37. ©McGraw-Hill Education.
SAMPLE MATRIX
ORGANIZATION LO 8-4
Jump to Appendix 7 for long image description

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ADVANTAGES of the
MATRIX STYLE LO 8-4
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.

39. ©McGraw-Hill Education.
DISADVANTAGES of the
MATRIX STYLE LO 8-4
It’s a temporary solution to a possible long-term
problem.
Teams are not permanent.
It’s costly and complex.
Employees may be
confused where their
loyalty belongs.
Good interpersonal skills
and cooperative
employees are a must. Photo credit: ©John Lund/Drew Kelly/Blend Images LLC

40. ©McGraw-Hill Education.
CROSS-FUNCTIONAL
SELF-MANAGED TEAMS LO 8-4
Cross-Functional Self-Managed Teams -- Groups
of employees from different departments who work
together on a long-term basis.
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.

41. ©McGraw-Hill Education.
GOING BEYOND
ORGANIZATIONAL BOUNDARIES LO 8-4
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.

42. ©McGraw-Hill Education.
BUILDING SUCCESSFUL TEAMS
Important Conditions for Small Teams LO 8-4
• Clear purpose
• Clear goals
• Correct skills
• Mutual accountability
• Shift roles when
appropriate
Source: CIO Magazine, www.cio.com, accessed November 2014.
Photo credit: Caiaimage/Glow Images

43. ©McGraw-Hill Education.
TEST PREP 2 of 3
1. What’s the difference between line and staff
personnel?
2. What management principle does a matrix-style
organization challenge?
3. What’s the main difference between a matrix-
style organization’s structure and the use of
cross-functional teams?

44. ©McGraw-Hill Education.
REAL-TIME BUSINESS LO 8-5
Networking -- Using communications technology to link
organizations and allow them to work together.
Most companies are no longer self-sufficient; they’re
part of a global business network.
Real Time -- The present moment or actual time in
which something takes place.

45. ©McGraw-Hill Education.
TRANSPARENCY and VIRTUAL
CORPORATIONS LO 8-5
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.

46. ©McGraw-Hill Education.
A VIRTUAL CORPORATION LO 8-5
Jump to Appendix 8 for long image description

47. ©McGraw-Hill Education.
CUTTING BACK WHILE
CUTTING COSTS
Hiring workers is a major
expense for small business
owners.
This has led to more offshore
outsourcing.
The increase can be partly
attributed to the presence of
online job marketplaces like
ODesk.
Photo credit: ©John Lund/Paula Zacharias/Blend Images

48. ©McGraw-Hill Education.
BENCHMARKING and
CORE COMPETENCIES LO 8-5
Benchmarking -- Compares an organization’s
practices, processes and products against the world’s
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.

49. ©McGraw-Hill Education.
BENEFITS and CONCERNS of
HEALTHCARE OUTSOURCING LO 8-5
Benefits
• Provides enough staff to
operate the facility
• Cost savings
Concerns
• Lower employee morale
• Liability
• Should patients be
informed
• Confidentiality and
security
Source: Healthcare Financial Management.

50. ©McGraw-Hill Education.
WHICH JOBS are most often
OUTSOURCED? LO 8-5
Source: USA Today.

51. ©McGraw-Hill Education.
ADAPTING to
MARKET CHANGES LO 8-5
Change isn’t 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. Photo credit: (c) Comstock Images/Alamy

52. ©McGraw-Hill Education.
KEEP in TOUCH
Amazon and its Customer Database LO 8-5
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?

53. ©McGraw-Hill Education.
MAKING the CHANGE LO 8-5
Digital Natives -- Young people who have grown
up using the Internet and social networking.
Photo Credit: Marc Wathieu

54. ©McGraw-Hill Education.
WHEN OPEN COMMUNICATION SHOULD
NOT BE SO OPEN
The blending of mobile technology
and work has been helpful to
business.
However, it also has encroached on
the traditional work-life boundaries.
Over 1/3 of surveyed employees
responded that receive work-
related emails after hours, many
complain it affects quality of life.
Photo credit: ©almagami/ Alamy RF

55. ©McGraw-Hill Education.
RESTRUCTURING LO 8-5
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 manager’s job is to assist and support frontline
workers, not boss them.

56. ©McGraw-Hill Education.
TRADITIONAL and INVERTED
ORGANIZATIONS LO 8-5
Jump to Appendix 9 for long image description

57. ©McGraw-Hill Education.
ORGANIZATIONAL CULTURE LO 8-6
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.
Photo credit: © Mark Edward Atkinson/Blend Images/ Alamy

58. ©McGraw-Hill Education.
FORMAL ORGANIZATION LO 8-6
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.

59. ©McGraw-Hill Education.
INFORMAL ORGANIZATION LO 8-6
Informal Organization -- The system of relationships that
develop spontaneously as employees meet and form
relationships.
The informal organization
helps foster camaraderie
and teamwork among
employees.
Photo credit: © SuperStock

60. ©McGraw-Hill Education.
LIMITATIONS of INFORMAL
ORGANIZATIONS LO 8-6
The informal system is
too unstructured and
emotional on its own.
The informal organization
may also be powerful in
resisting management
directives. Photo credit: Caiaimage/Glow Images

61. ©McGraw-Hill Education.
GROUP NORMS
Examples of Informal Group Norms LO 8-6
• Do your job but don’t produce more than the rest
of your group.
• Don’t 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, www.cio.com, accessed November 2014.

62. ©McGraw-Hill Education.
TEST PREP 3 of 3
1. What is an inverted organization?
2. Why do organizations outsource functions?
3. What is organizational culture?

63. ©McGraw-Hill Education.
Appendix 1: TYPICAL ORGANIZATION CHART
A typical organization chart is shown with four levels.
At the bottom level are the employees who report to
the first line supervisors. The first-line supervisors
report to a specific manager such as a production
manager, a marketing manager, or a finance
manager. These managers, in turn, report to the
president who is the top level of the organization.
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64. ©McGraw-Hill Education.
Appendix 2: CENTRALIZATION and
DECENTRALIZATION
Advantages of centralized authority:
Greater top-management control
More efficiency
Simpler distribution system
Stronger brand/corporate image
Disadvantages of centralized authority:
Less responsiveness to customers
Less empowerment
Interorganizational conflict
Lower morale away from headquarters
Advantages of decentralized authority:
Better adaptation to customer wants
More empowerment of workers
Faster decision making
Higher morale
Disadvantages of decentralized authority:
Less efficiency
Complex distribution system
Less top-management control
Weakened corporate image
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65. ©McGraw-Hill Education.
Appendix 3: ADVANTAGES and DISADVANTAGES
of the DIFFERENT SPANS of CONTROL
Advantages a narrow span of control:
More control by top management
More chances for advancement
Greater specialization
Closer supervision
Disadvantages of a narrow span of control:
Reduced costs
More responsiveness to customers
Faster decision making
More empowerment
Advantages of a broad span of control:
Less empowerment
Higher costs
Delayed decision making
Less responsiveness to customers
Disadvantages of a broad span of control:
Fewer chances for advancement
Overworked managers
Loss of control
Less management expertise
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66. ©McGraw-Hill Education.
Appendix 4: WAYS to DEPARTMENTALIZE 1 of 2
An organizational chart that depicts departmentalization by product
shows a marketing manager in charge of three areas: trade books,
college texts, and technical books.
An organizational chart that depicts departmentalization by function
shows the president in charge of production, marketing, finance, human
resources, and accounting.
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67. ©McGraw-Hill Education.
Appendix 5: WAYS to DEPARTMENTALIZE 2 of 2
An organizational chart that depicts departmentalization by customer
group shows the president in charge of four groups: consumers,
commercial users, manufacturers, and institutions.
An organizational chart that depicts departmentalization by geographic
location shows the vice president of international operations in charge
of the Canadian division, the Japanese division, the European division,
and the Korean division
An organizational chart that depicts departmentalization by process
shows the production manager in charge of cutters, dyers, and
stitchers.
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68. ©McGraw-Hill Education.
Appendix 6: SAMPLE LINE-and-STAFF
ORGANIZATION
An organizational chart is shown with the chief executive officer (CEO)
at the top. Directly reporting to the CEO is the plant manager. Three
supervisors report directly to the plant manager and each of the three
supervisors have assembly line workers reporting to them. All of these
employees are considered line personnel. Three staff personnel
departments (human resources, legal, and marketing research) are
shown on the chart off to the side without directly reporting to any one
individual.
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69. ©McGraw-Hill Education.
Appendix 7: SAMPLE MATRIX
ORGANIZATION
An organizational chart is shown with the president at the top. Directly
reporting to the president are the vice presidents of project
management, manufacturing, marketing, finance, and engineering.
Each vice president has employees that report directly to them in a line
structure. Three project managers report directly to the vice president of
project management but are also shown as staff personnel to the other
departments.
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70. ©McGraw-Hill Education.
Appendix 8: A VIRTUAL CORPORATION
In the center of the graphic is a circle labeled core firm. Surrounding the
core firm are other circles labeled: production firm, distribution firm,
advertising agency, design firm, legal firm, and accounting firm. These
circles are connected to the core firm by dashed arrows indicating that
they join and leave the core firm as needed.
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71. ©McGraw-Hill Education.
Appendix 9: TRADITIONAL and INVERTED
ORGANIZATIONS
The organization chart in a traditional firm is shown as a pyramid and is
sectioned from top to bottom in the following order:
Top management
Middle management
Supervisory management
Frontline workers
An inverted organization chart is shown as an upside down pyramid
sectioned from top to bottom in the following order:
Empowered frontline workers (often in teams)
Support personnel
Top management
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