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- 1. 6 chapter Business Essentials, 7th Edition Ebert/Griffin © 2009 Pearson Education, Inc. Organizing the Business Instructor Lecture PowerPoints PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College
- 2. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. © 2009 Pearson Education, Inc. 2
- 3. After reading this chapter, you should be able to: 1. Discuss the factors that influence a firm’s organizational structure. 2. Explain specialization and departmentalization as two of the building blocks of organizational structure. 3. Describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy. © 2009 Pearson Education, Inc. L E A R N I N G O B J E C T I V E S
- 4. After reading this chapter, you should be able to: 4. Explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organizational design. 5. Describe the informal organization and discuss intrapreneuring. L E A R N I N G O B J E C T I V E S (cont’d) © 2009 Pearson Education, Inc.
- 5. What’s in It for Me? • By understanding the material in this chapter, you’ll also be prepared to: – Understand your “place” in the organization that employs you – Be better equipped to create the optimal structure for your own organization as a boss or owner – Understand the functioning of virtual and informal organizations as well as intrapreneuring © 2009 Pearson Education, Inc.
- 6. What Is Organizational Structure? • Organizational Structure – The specification of the jobs to be done within an organization and the ways in which those jobs relate to one another • Organizational Charts – Clarify structure and show employees where they fit into a firm’s operations – Show the chain of command, or reporting relationships, within a company © 2009 Pearson Education, Inc.
- 7. © 2009 Pearson Education, Inc. FIGURE 6.1 The Organizational Chart
- 8. Determinants of Organizational Structure External Environment Internal Environment Size Strategy Mission Organizational structure is usually quite fluid! © 2009 Pearson Education, Inc.
- 9. The Building Blocks of Organizational Structure • Specialization – Division of work: job specialization • Departmentalization – Product, process, functional, customer, or geographic • Establishment of a decision-making hierarchy – Distributing authority: • Delegation: assigning tasks • Centralization: upper management retains authority • Decentralization: lower-level managers make decisions © 2009 Pearson Education, Inc.
- 10. Planning Departments • Once jobs have been specialized, they need to be grouped into logical units. – This is called departmentalization. – Here are some areas of departmentalization: • Product departmentalization • Process departmentalization • Functional departmentalization • Customer departmentalization • Geographic departmentalization • Multi forms (combinations) of departmentalization © 2009 Pearson Education, Inc.
- 11. FIGURE 6.2 Multiple Forms of Departmentalization © 2009 Pearson Education, Inc.
- 12. Establishing the Decision-Making Hierarchy Centralized Organization Decentralized Organization Lower-level managers hold significant decision-making authority Top managers hold most decision-making authority © 2009 Pearson Education, Inc.
- 13. Tall and Flat Organizations • Flat Organizational Structure – Common in decentralized organizations – Fewer layers of management – Rapid communication – Wide spans of control • Tall Organizational Structure – Common in centralized organizations – Multiple layers of management – Slower communication – Narrower spans of control © 2009 Pearson Education, Inc.
- 14. Figure 6.3 Organizational Structure and Span of Control © 2009 Pearson Education, Inc.
- 15. The Delegation Process • Delegation – The process through which a manager allocates work to subordinates • Delegation Entails: – Assignment of responsibility—the duty to perform an assigned task – Granting of authority—the power to make decisions necessary to complete the task – Creation of accountability—the obligation of employees to successfully complete the task © 2009 Pearson Education, Inc.
- 16. Why Managers Won’t Delegate • The fear that subordinates don’t really know how to do the job • The desire to keep as much control as possible over how things are done • The fear that a subordinate might “show the manager up” in front of others by doing a superb job • A simple lack of ability as to how to effectively delegate to others © 2009 Pearson Education, Inc.
- 17. Forms of Authority • Line Authority – The type of operational authority that flows up and down the chain of command • Staff Authority – Authority based on special expertise and usually involves counseling and advising line managers • Committee and Team Authority – Authority granted to committees or work teams that play central roles in the firm’s daily operations © 2009 Pearson Education, Inc.
- 18. Figure 6.4 Line and Staff Organization © 2009 Pearson Education, Inc.
- 19. Forms of Organizational Structure • Functional Structure – Form of business organization in which authority is determined by the relationships between group functions and activities – Used by most small- to medium-sized firms structured around basic business functions (marketing, operations, finance) – Advantages: • Specialization and smoother internal coordination – Disadvantages: • Centralization, poor cross-functional coordination, and lack of accountability © 2009 Pearson Education, Inc.
- 20. Figure 6.5 Functional Structure © 2009 Pearson Education, Inc.
- 21. Forms of Organizational Structure (cont’d) • Divisional Structure – Based on departmentalization by product, with each division managed as a separate enterprise – Organizations using this approach are typically structured around several divisions—departments that resemble separate businesses in that they produce and market their own products – Advantages: • Increased product-focus and internal coordination – Disadvantages: • Duplication of efforts and competition between divisions © 2009 Pearson Education, Inc.
- 22. Figure 6.6 Divisional Structure © 2009 Pearson Education, Inc.
- 23. Forms of Organizational Structure (cont’d) • Matrix Structure – Organized along two dimensions, instead of just one, by combining, for example, functional and divisional structures – Advantages: • Highly flexible, focused on a single problem, access to resources and expertise – Disadvantages: • Loss of command and control, lack of accountability, impermanent existence © 2009 Pearson Education, Inc.
- 24. FIGURE 6.7 Matrix Organization at Martha Stewart’s Omnimedia © 2009 Pearson Education, Inc.
- 25. Forms of Organizational Structure (cont’d) • International Structures – Developed in response to the need to manufacture, purchase, and sell in global markets – Department, division, or geographic • Global Structure – Acquiring resources (including capital), producing goods and services, engaging in research and development, and selling products in whatever local market is appropriate, without any consideration of national boundaries © 2009 Pearson Education, Inc.
- 26. FIGURE 6.8 International Division Structure © 2009 Pearson Education, Inc.
- 27. Organizational Design for the 21st Century • Team Organization – Relies almost exclusively on project-type teams, with little or no underlying functional hierarchy • Virtual Organization – Has little or no formal structure, few permanent employees, a very small staff, and a modest administrative facility • Learning Organization – Integrates continuous improvement and employee learning and development while transforming itself to respond to changing demands and needs © 2009 Pearson Education, Inc.
- 28. FIGURE 6.9 The Virtual Organization © 2009 Pearson Education, Inc.
- 29. Informal Organization • Informal Organization – Everyday social interactions among employees that transcend formal jobs and job interrelationships – Advantages: • May reinforce the formal organization – Disadvantages: • Can reinforce office politics that put the interests of individuals ahead of those of the firm • May communicate distorted or inaccurate information © 2009 Pearson Education, Inc.
- 30. Informal Organization (cont’d) • Informal Groups – Groups of people who decide to interact among themselves, sometimes about business • Organizational Grapevine – The informal communication network that runs throughout the organization • Intrapreneuring – Creating and maintaining the innovation and flexibility of a small-business environment within the confines of a large, bureaucratic structure © 2009 Pearson Education, Inc.
- 31. Key Terms accountability authority centralized organization chain of command committee and team authority customer departmentalization decentralized organization delegation departmentalization division divisional structure flat organizational structure functional departmentalization functional structure geographic departmentalization grapevine informal organization international organizational structures intrapreneuring job specialization line authority line department matrix structure organization chart organizational structure process departmentalization product departmentalization © 2009 Pearson Education, Inc.
- 32. Key Terms (cont.) profit center responsibility span of control staff authority staff members tall organizational structure work team © 2009 Pearson Education, Inc.
Editor's Notes
- In this chapter we will examine the topic of organizing for the business. We will discuss the factors that influence a firm’s organizational structure. We will explain specialization and departmentalization as two of the building blocks of organizational structure. We will describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy. Teaching Tips: Ask the class to engage in the following way with the each objective: Objective 1: Discuss the factors that influence a firm’s organizational structure. Please join with another student and discuss two factors that might influence a firm’s organizational structure. We will share our answers with the class. Answers should include size, type and location as possible responses. Objective 2: Explain specialization and departmentalization as two of the building blocks of organizational structure. Please remain in your teams from Objective 1. Please identify two examples of specialization or departmentalization in an organization. We will share our answers with the class. Answers will vary. Objective 3: Describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy. Please form new pairs of two students. Each pair will prepare a description of centralization and decentralization. Let’s share our responses with the class. Answers will vary. You can allow the students to name those they come up with but return to the topic later in the chapter.
- We will also explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organizational design. We will describe the informal organization and discuss intrapreneuring. Teaching Tips Objective 4: Explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organization design. In your teams, please choose one of the different forms of organizational design and give an example of each. We will share these with the class. Answers will vary. Objective 5: Describe the informal organization and discuss intrapreneuring. In your student tems please give an example of intrapreneuring. Answers will vary."
- What’s in this for you? By understanding the material discussed in this chapter you’ll be better prepared to: Understand your “place” in the organization that employs you. Be better equipped to create the optimal structure for your own organization as a boss or owner. Understand the functioning of virtual and informal organizations as well as intrapreneuring. Teaching Tips: Which of these three points will be most interesting to you and why? Also, as you discuss this in your teams, please think of two ways you will be affected. We will then share with the class. Answers will vary.
- Organizational structure is the specification of the jobs to be done within an organization and the ways in which those jobs relate to one another. Organizational charts are used to: Clarify structure. Show employees where they fit into a firm’s operations. Show the chain of command, or reporting relationships, within a company. Teaching Tips: Please return to your student team and think of an example company from whom you buy products or services. Develop an example of what their organizational chart might look like. We will share the answers with the class. Answers will vary. Have the students share and see if they can name the different types of organizational structures they have prepared, but hold off providing the appropriate answer until later in the class.
- Here is an example of an organizational chart. Teaching Tips: How does your example chart compare to this one? Please discuss in your student teams and then we will share with the class. Answers will vary.
- What are some elements that help determine the type of organizational structure an organization will use? Usually organizational structure is quite fluid. Let’s examine some of the determining factors: Mission: The organization’s mission can describe a specific manner in which the firm should manage employees, work flow, etc. Strategy: The organization’s strategy can determine the hierarchy or shape of the organization chart. Size: The larger an organization, the more complex will its organizational structure be. Internal Environment: Depending on how the organization reacts within its internal environment can determine the shape and style of its organizational structure. External Environment: The same holds true for how an organization deals with the external environmental variables that are outside of its control. Teaching Tips: In your same student teams, please refer back to the corporate example you used earlier. Please choose one of the five determinants of organizational structure and give an example of how that factor might impact your example organization and its structure. We will share our responses with the class. Answers will vary.
- Let’s examine the building blocks of organizational structure: Specialization refers to division of work, or job specialization. There are five basic types of departmentalization: Product. Process. Functional. Customer. Geographic. We also need to examine the establishment of a decision-making hierarchy. This includes distributing authority such as: Delegation or assignment of tasks to specific departments. Centralization, when upper management retains authority. Decentralization, which allows lower-level managers make decisions. Teaching Tips: In your student teams, look again at the example company you have been discussing and decide how you believe that organization distributes authority. Answers will vary but should refer to delegation, centralization or decentralization.
- Once jobs have been specialized, they need to be grouped into logical units, which is called departmentalization. Here are some areas of departmentalization: Product departmentalization. Process departmentalization. Functional departmentalization. Customer departmentalization. Geographic departmentalization. Multi forms or combinations of departmentalization. Teaching Tips: In your same student teams, please once again focus on your example company. Choose one of the areas of departmentalization we have just discussed and come up with two examples of jobs which might be found within the area you chose. Answers must include potential management job titles that would fall within the six areas of departmentalization.
- This figure depicts multiple forms of departmentalization, including: Functional: Grouped by functional areas such as marketing, production or finance. Geographical: Organized by state location plant managers. Product: Split into the two groups, consumer products and industrial products in this example. Teaching Tips: In your student teams, please look at this diagram and decide if any of these forms of departmentalization might apply. Please share your responses with the class. Answers will vary.
- Once we have organized our organization, we need to establish the decision-making hierarchy. There are basically two types of decision-making hierarchy: Centralized organization: Top managers hold most decision-making authority. Decentralized organization: Lower-level managers hold significant decision-making authority. Teaching Tips: In your student teams, refer to the example organization you have been discussing and determine which type of decision-making hierarchy applies. We will share our answers with the class. Answers will vary, but students should defend their position of one versus the other.
- As we examine organizational structure, we need to look at both tall and flat models. Flat organizational structure: Is common in decentralized organizations. Has fewer layers of management. Involves rapid communication. Has wide spans of control. Tall organizational structure: Is common in centralized organizations. Has multiple layers of management. Involves slower communication. Has narrower spans of control. Teaching Tips: Once again in your student teams, please think about your example company. What type of organizational strategy does the firm use? Answers should include either flat or tall organizational structure, with evidence coming from the items listed under each above.
- This diagram shows the difference between organizational structure and span of control. As you can see, the flat organizational structure is demonstrated by the example of a law firm. It is easy to see the decision-making process here. The U.S. Army example shows the many layers of decision making in a tall organization. Teaching Tips: In your student teams, discuss the difference between these two types of organizations. We will share our discussion with the entire class. Answers should refer back to the last slide and offer explanations incorporating those elements.
- The delegation process is important within any type of organization. Delegation refers to the process through which a manager allocates work to subordinates. Delegation also entails the following: Assignment of responsibility, which is the duty to perform an assigned task. Granting of authority, or the power to make decisions necessary to complete the task. Creation of accountability or the obligation of employees to successfully complete the task. Teaching Tips: Please form a new student team. In your new team, please choose one of the three elements of delegation. Then choose a different company example and discuss how you believe that company may apply your type of delegation. Answers will vary based on the companies chosen; however, they need to incorporate the reasons behind the type of delegation chosen by the group.
- Sometimes managers don’t want to or won’t delegate authority or responsibility. Here are some of the main reasons for this behavior: The fear that subordinates don’t really know how to do the job. This issue could be training, such as the manager not taking enough time to properly train his or her employees in job functions. The desire to keep as much control as possible over how things are done. This is a key issue for many managers. Rather than provide goals or guidelines, they instead “micro manage” their employees, keeping as much control as they can over the work. The fear that a subordinate might “show the manager up” in front of others by doing a superb job. Sometimes managers will actually take credit for work performed by a subordinate. A simple lack of ability as to how to effectively delegate to others. Managers themselves may never have been trained how to delegate properly. Teaching Tips: In your student teams, discuss which of these fears you may have yourself or which of these fears you have seen in action in a company you know or are familiar with. Answers will vary.
- There are a number of forms of authority that can be used within an organization. These include: Line Authority: This is the type of operational authority that flows up and down the chain of command. Staff Authority: This is authority based on special expertise and usually involves counseling and advising line managers. Many times marketing staff will fit in this area. Committee and Team Authority: This is the type of authority granted to committees or work teams that play central roles in the firm’s daily operation. Teaching Tips: In your student teams, please choose one form of authority that we have just discussed. Please think back to any of your example companies you have discussed today and determine what type of authority you believe that company might use and why. Answers will vary based on company chosen.
- This figure shows the differences between line and staff managers in an organization. Here, the staff managers are those within the Human Resources Department and the Engineering Department. The actual functional areas such as purchasing, materials handling, and even sales are grouped and report to the division manager for that specific product. Teaching Tips: Discuss with your student partner which type of management appeals to you. What type of manager would you like to be—staff or line—and why? We will share our answers with the class. Answers will vary based on students.
- Now we will take a look at functional structure. Functional structure is a form of business organization in which authority is determined by the relationships between group functions and activities. Functional structure is used by most small- to medium-sizes firms that are structured around basic business functions, such as marketing, operations and finance. The advantages of functional structure include specialization and smoother internal coordination. The disadvantages of functional structure include centralization, poor cross-functional coordination and lack of accountability. Teaching Tips: In your student teams, please think of an example of a small- to medium-sized business. Then discuss the advantage or disadvantage you see in using functional structure within that example firm. We will share our responses with the class. Answers will vary based on companies chosen but should refer back to the specific advantages and disadvantages listed in the above slide.
- Figure 6.5 provides us with a visual example of functional structure. Teaching Tips: What do you see in this organizational chart that could make your sample company a success or a failure? Please refer back to our discussion a few minutes ago. We will share our examples with the class. Answers will vary but could include lack of open communication between functional areas, making it take much longer to get decisions made within the organization.
- Another type of organization is divisional structure. It is based on departmentalization by product, with each division managed as a separate enterprise. Organizations using this approach are typically structured around several divisions. The divisions are departments that resemble separate businesses in that they produce and market their own products. Advantages of divisional structure include increased product-focus and internal coordination. Disadvantages of divisional structure include duplication of efforts and competition between divisions. Let’s see what this looks like in the next slide.
- Figure 6.6 is an example of an organization that uses divisional structure. Teaching Tips: Now go back, in your student teams, to the example company you selected before for other activities. Please apply divisional structure to that organization and discuss how this structure could help or hinder the company you chose. We will share our answers with the class. Answers will vary based on the company chosen. However student answers should reflect back to the material presented about divisional structure.
- Another form of organizational structure is matrix. The matrix structure is organized along two dimensions instead of just one. For example, the matrix organization may combine functional and divisional structures. The advantages of a matrix structure are: It is highly flexible. It is focused on a single problem. It has access to resources and expertise. The disadvantages of the matrix structure include: Loss of command and control. Lack of accountability. Impermanent existence. Let’s take a look at a matrix organizational structure.
- Figure 6.7 provides an example of a matrix organization within Martha Stewart’s Omnimedia organization. Here we see that there are two basic function areas: the media group and the merchandising group. Under each of these are specific media and different retailer lines. The interesting issue here is the use of area specialists, in various areas of importance to the company, such as cooking, weddings, crafts, gardening, etc. Teaching Tips: Imagine your student team has been hired by Omnimedia as a team of consultants with experience in organizational structure. Martha wants to know the benefits of using this type of matrix organization. Please discuss this in your teams. What will be included in your response to Martha Stewart? Be sure to provide evidence for your recommendation. We will share our recommendations with the class. Answers should address the key advantages stated in the last slide.
- There are two other forms of organizational structure we will examine: International and global structures. International structures are developed in response to the need to manufacture, purchase and sell in global markets. In addition, their structure will include department, division or geographic forms of organization. Global structure includes the following: Acquiring resources, including capital. Producing goods and services. Engaging in research and development. Selling products. All the above are completed without any consideration of national boundaries. Teaching Tips: In your student teams, please think of a multinational corporation that offers a consumer product for sale. Discuss in your teams which structure would be best for your chosen organization and why it is the best structure. We will share our responses with the class. Answers will vary according to the company chosen.
- Here is an example of an international division structure, split geographically.
- As we have entered the 21st century, we need to be aware of three additional types of organizational design. Team organization: This type of organization relies almost exclusively on project-type teams, with little or no underlying functional hierarch. Virtual Organization: This type of organization has little or no formal structure, few permanent employees, a very small staff and a modest administrative facility. Learning Organization: This type of organization integrates continuous improvement and employee learning and development while transforming itself to respond to the changing demands and needs of the market. Teaching Tips: In your student teams please choose one of the three types of organizational design for the 21st century. In your teams, please name two organizations that you believe fit your type of organizational design with evidence as to why this is a fit. We will share our answers with the class. Answers will vary but should focus on the logic stated above for each type of organization.
- Figure 6.9 shows us what a virtual organization looks like. This organization would have a group of core managers in finance, operations and management. Then the company would outsource or contract with other firms that specialize in such areas as: Manufacturing in Asia. Administrative services. Accounting functions. Human Resources. Sales and marketing. Distribution and logistics. Teaching Tips: In your student teams, discuss why an organization might choose this form. Be sure to address the type of organization that might choose this format. Answers can vary but could include: Small companies that are growing. Large companies that choose to use specialists in a field rather than retain these functions in house.
- The informal organization includes everyday social interactions among employees that transcend formal jobs and job interrelationships. Advantages of informal organization are that it may reinforce the formal organization. Disadvantages include that it could reinforce office politics that put the interests of individuals ahead of those of the firm. In addition, this type of organization may communicate distorted or inaccurate information. Teaching Tips: In your student teams, discuss why an informal organization could improve or hinder the productivity of one of the sample companies you have discussed in this class session. Answers will vary but should be based on the information presented in this slide as it is applied to the company being discussed.
- Finally there are three more informal organizations we will discuss. Informal groups: These are groups of people who decide to interact among themselves, sometimes about business. Organization Grapevine: This is the informal communication network that runs throughout the organization. Intrapreneuring: This involves creating and maintaining the innovation and flexibility of a small-business environment within the confines of a large, bureaucratic structure. Teaching Tips: In your student teams, please choose one of the three types of informal organizations we have just discussed. Please make a list of two examples of how the type of informal organization you chose could affect a company. We will share our examples with the class. Answers will vary based on the topic chosen, but should include both positive as well as negative impacts of each type of informal organization.
- There are many key terms that we learned in this chapter. Teaching Tips: Please form teams of two students. Each team will be assigned a number of terms. Your team should write an appropriate sentence using the key terms assigned to your group, which we will share with the class.
- There are many key terms that we learned in this chapter. Teaching Tips: Please form teams of two students. Each team will be assigned a number of terms. Your team should write an appropriate sentence using the key terms assigned to your group, which we will share with the class.