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Chapter 8 Adapting Organizations to Today’s Markets 8-2

Learning Objectives • 1.) Organization Structure • 2.) Organizational Design Choices • 3.) Common Organizational Design Models • 4.) Virtual Corporation • 5.) How Corporation Changes to Adapt

Organization Structure • Who can tell who what to do • Who does what • What are the rules and procedures for how we work together

Show the activities of the organization Highlight subdivisions of the organization Identify different types of work performed Provide information about different management levels Show the lines of authority and the flow of organizational communications Purpose of an Organizational Chart

Organization Division Department Group Individual Organizational Design

Division of Labor • Division of Labor – Organizing, or structuring begins with determining what work needs to be done (mowing, edging, trimming, etc.), and then dividing up tasks among people.

Departmentalization • Departmentalization – Your business might evolve into a company with several different departments : production, marketing, accounting, repair, etc. The process of setting up individual departments to do specialized tasks is called departmentalization.

Mass Production • Mass Production – Introduced in the early 1900s, it is efficiently producing large quantities of goods.

Economies of Scale • Is the situation in which companies can reduce their production costs of they can purchase raw materials in bulk, the average cost of goods goes down as production levels increase.

Unity of Command Hierarchy of Authority Division of Labor Subordination of Individual Interest Authority Degree of Centralization Communication Channels Order Equity Esprit de Corps Fayol’s Principles of Organization

Unity of Command • Unity of Command – Each worker is to report to one, and only one, boss. The benefits are obvious. What happens if two different bosses give you different assignments? Which one should you follow?

Hierarchy of Authority • Hierarchy of Authority - All workers should know to whom they should report. Mangers should have the right to give orders and expect others to follow.

Weber’s Organizational Principles • Job Descriptions • Written Rules • Procedures, Regulations, Policies • Staffing/Promotions based on Qualifications

Layers of Authority • Top Managers- Decision Makers • Middle Managers- Developed Rules & Procedures • Workers and Supervisors

Chain of Command Rules & Regulations Set Up by Function Communication is Minimal Fundamentals of Bureaucracy

Hierarchy (Organizational Chart) • A system in which one person is at the top of the organization and there is a ranked or sequential ordering from the to top down of mangers who are responsible to that person.

Chain of Command • Chain of Command – The line of authority that moves from the top of a hierarchy to the lowest level.

Bureaucracy • Bureaucracy – An organization with many layers of managers who set rules and regulations and oversee all decisions.

Organizational Design Choices • Centralized Authority – An organization structure in which decisions-making authority is maintained at the top level of management at the company’s headquarters.

Advantages Increased Uniformity Less Duplication Maximum Control Disadvantages Lots of Policies & Procedures Many Layers/Slower Centralization(No Delegation)

Organizational Design Choices • Decentralized authority – An organization structure in which decision-making authority is delegated to lower-level managers more familiar with local conditions than headquarters management could be.

Advantages Informed Decisions Worker Responsibility Few Layers/Faster Disadvantages Loss of Control Possible Duplication Decentralization (Delegate Authority)

Span of Control • Span of Control – The optimum number of subordinates a manger supervises or should supervise.

Capabilities of Subordinates & Manager Complexity of Job Geographically Close Functional Similarity Need for Coordination Planning Demands Functional Complexity Span of Control

Organizational Structures • Tall Organizational Structure – The pyramidal organization chart would be quite tall because of the various level of management. • Flat Organizational Structure – Has few layers of management and a broad span of control.

Tall Organizations Many Layers of Management High Cost of Management Flat Organizations Current Trend Creation of Teams Organizational Structures

Product Function Customer Location Process Departmentalization

Line Organization • An organization that has direct two-way lines of responsibility, authority, and communication running from the top to the bottom of the organization, with all people reporting to only one supervisor.

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 Line Organizations

Line and Staff Organization • Line Personal – Employees who are part of the chain of command that is responsible for achieving organizational goals. • Staff Personal – Employees who advise and assist line personal in meeting their goals.

Line Personnel Perform Functions Contribute Directly to Organizational Goals Staff Personnel Advise Assist Line Personnel Line/Staff Organizations

Matrix Organization • An organization in which specialists from different parts of the organization are brought together to work on specific projects but still remain part of a line-and-staff structure.

Advantages Flexibility Cooperation & Teamwork Creativity More Efficient Use of Resources Disadvantages Costly/Complex Confusion in Loyalty Requires Good Interpersonal Skills & Cooperation Not Permanent Matrix Organizations

Cross-Functional Self-Managed Teams • Groups of employees from different departments who work together on a long term basis.

Virtual Corporation • A temporary networked organization made up of replaceable firms that join and leave as needed.

A Virtual Corporation Production Firm Distribution Firm Accounting Firm Core Firm Legal Firm Advertising Agency Design Firm

Benchmarking • Comparing an organization’s practices, processes, and products against the world’s best.

Core-Competencies • Those functions that the organization can do as well as or better than any other organization in the world.

Outsourcing • Assigning various functions, such as accounting, production, security, maintenance, and legal work, to outside organizations.

Reasons to Outsource Source: CIO, “2003 Outsourcing Trends”

Time to focus on company’s primary function Increased level of expertise Cost effectiveness Decreased overhead Risk reduction Flexibility Technology Less personal approach Less control by owner in planning, implementing & carrying out company’s future Potential for competing for the outsourcing firm’s time Outsourcing Benefits Downside

Top Five Outsourced Business Categories Source: BusinessWeek, July 8, 2002

Corporations Adapt to Change • Restructuring – Residing an organization so that it can more effectively and efficiently serve its customers. • Inverted Organization – Has contact people at the top and the chief executive officer at the bottom of the organization chart.

Corporations Adapt to Change • Reengineering – The fundamental rethinking and radical redesign of organizational processes to achieve dramatic improvements in critical measures of performance. • Organizational Culture – Widely shared values within an organization that provide unity and cooperation to achieve goals.

Formal Organization • Formal organization – The structure that details lines of responsibility, authority, and position, that is, the structure shown on organizational charts.

Informal Organization • The system of relationships and lines of authority that develops spontaneously as employees meet and from power centers, that is, the human side of the organization that does not appear on any organizational chart.

Inverted Organization Structure Empowered front-line workers Support Personnel Top Mgmt.

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