This chapter discusses organizational structures and how companies can adapt them to today's markets. It covers classical organizational theorists like Fayol and Weber and their principles of organization. Different types of organizational structures are presented like tall vs flat, centralized vs decentralized, line vs staff vs matrix structures. Factors that impact organizational design choices are also examined, such as span of control and departmentalization. The chapter concludes with discussions on virtual organizations, outsourcing, empowering employees, and adapting to change through organizational culture.

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Adapting
Organizations
to Today’s
Markets
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McGraw-Hill/Irwin
Understanding Business, 8e
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McHugh
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© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Structuring an Organization
Comprises:
• Division of Labor
• Accountability
• Team Tasks
• Allocating
Resources
• Assigning
Responsibility/
Authority
• Establishing
Procedures
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Fayol’s Principles
of Organization
• Unity of Command
• Hierarchy of
Authority
• Division of Labor
• Subordination of
Individual Interest
to the General
Interest
• Authority
• Degree of
Centralization
• Clear
Communication
Channels
• Order
• Equity
• Esprit de Corps
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Weber’s
Organizational Principles
• Job Descriptions
• Written Rules
• Procedures, Regulations,
Policies
• Staffing/Promotions Based
on Qualifications
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Centralization
(No Delegation)
Advantages
• Greater TopManagement Control
Disadvantages
• More Efficiency
• Less
Responsiveness to
Customers
• Simpler Distribution
System
• Less
Empowerment
• Stronger
Brand/Corporate
Image
• Interorganizational
Conflict
• Lower Morale Away
from Headquarters
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Decentralization
(Delegate Authority)
Advantages
• Better Adaptation to •
Customer Wants
•
• More Empowerment
of Workers
•
• Faster Decision
Making
•
• Higher Morale
Disadvantages
Less Efficiency
Complex Distribution
System
Less Top-Management
Control
Weakened Corporate
Image
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Organizational Structures
Tall Organizations
• Many Layers of
Management
• High Cost of
Management
• Narrow Span of
Control
Flat Organizations
• Current Trend
• Creation of Teams
• Broad Span of
Control
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How to Make Jobs
Fit Your Company (Part 1 of 2)
Each manager must ask:
• What resources do I control to
accomplish my tasks?
• What measures will be used to evaluate
my performance?
• Who do I need to interact with and
influence to achieve my goals?
• How much support can I expect when I
reach out to others for help?
Source: HBS Working Knowledge, October 31,2005
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How to Make Jobs
Fit Your Company (Part 2 of 2)
Four Basic Spans of a Job:
•
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The Span of Control
The Span of Accountability
The Span of Influence
The Span of Support
Source: HBS Working Knowledge, October 31,2005
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Span of Control - Narrow
Advantages
Disadvantages
• More Control by
Top Management
• Less Empowerment
• More Chances for
Advancement
• Greater
Specialization
• Closer Supervision
• Higher Costs
• Delayed Decision
Making
• Less
Responsiveness to
Customers
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Span of Control - Broad
Advantages
• Reduced Costs
• More
Responsiveness
to Customers
• Faster Decision
Making
• More
Empowerment
Disadvantages
• Fewer Chances for
Advancement
• Overworked
Managers
• Loss of Control
• Less Management
Expertise
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Departmentalization
by Function
Advantages
• Skill Development
• Economies of
Scale
• Good Coordination
Disadvantages
• Lack of
Communication
• Employees Identify
with Department
• Slow Response to
External Demands
• Narrow Specialists
• Groupthink
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Departmentalization
• By Product
• By Function
• By Customer
Group
• By Geographic
Location
• By Process
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Line Organizations
Advantages
• Clear Authority
& Responsibility
• Easy to
Understand
• One Supervisor
Per Employee
Disadvantages
• Inflexible
• Few Specialists
for Advice
• Long Line of
Communication
• Difficult to Handle
Complex
Decisions
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Line/Staff Organizations
Line Personnel
Staff Personnel
• Formal Authority
• Advise Line
Personnel
• Make Policy
Decisions
• Assist Line
Personnel
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Matrix Organizations
Advantages
Disadvantages
• Flexibility
• Costly/Complex
• Cooperation &
Teamwork
• Confusion in
Loyalty
• Creativity
• Requires Good
Interpersonal
Skills &
Cooperation
• More Efficient Use
of Resources
• Not Permanent
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Important Conditions
for Small Teams
1.
2.
3.
4.
5.
Clear Purpose
Clear Goals
Correct Skills
Mutual Accountability
Shift Roles When Appropriate
Source: CIO Dec 2003
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Networking
• Real Time
• Transparency
• Virtual
Corporations
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A Virtual Corporation
Accounting
Firm
Production
Firm
Distribution
Firm
Core
Firm
Legal
Firm
Design
Firm
Advertising
Agency
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Benefits and Concerns of
Healthcare Outsourcing
Benefits
• Provides Enough
Staff to Operate the
Facility
• Cost Savings
Concerns
• Lower Employee
Morale
• Liability
• Should Patients be
Informed
• Confidentiality &
Security
Source: Healthcare Financial Management, 2005
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Which Jobs Will
Be Outsourced Next?
Manufacturing
Information
Technology
Customer
Support/Sales
0%
2%
4%
6%
8%
10%
12%
Source: USA Today
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Adapting to Change
• Restructuring for Empowerment
• Focusing on the Customer
• Creating a Change-Oriented
Organizational Culture
• The Informal Organization
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Layers of AuthorityTraditional
• Top Managers- Decision
Makers
• Middle Managers- Develops
Rules & Procedures
• Workers and Supervisors
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Inverted
Organization Structure
Empowered frontline workers
Support
Personnel
Top
Mgmt.
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Examples of
Informal Group Norms
• Do your job but don’t produce
more than the rest of the group.
• Don’t tell off-color jokes or use
profane language among group
members.
• Listen to the boss and use his/her
expertise but don’t trust him/her.
• Everyone is to be clean/organized at
the workstation.
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More Examples of
Informal Group Norms
• Never side with managers in a
dispute involving group members.
• Respect/help your fellow group
members on the job.
• Criticize the organization only
among group members-- never
among strangers.
• Drinking is done off-the-job-Never at work!
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