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Structuring Organizations for Today’s Challenges Chapter 08 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

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Presentation on theme: "Structuring Organizations for Today’s Challenges Chapter 08 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved."— Presentation transcript:

1 Structuring Organizations for Today’s Challenges Chapter 08 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2 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. LEARNING GOALS Chapter Eight 8-2

3 Profile Started as a summer intern and moved up through Xerox.Xerox The only female African- American CEO among Fortune’s Top 150 Companies. Serves on many boards and has been placed on councils by President Obama and Vice- President Biden. URSULA BURNS Xerox 8-3

4 This sport’s equipment company studied the CD industry and learned to use ultraviolet inks to print graphics on skis. It went to the cable television industry to learn how to braid layers of fiberglass and carbon, and adapted that knowledge to make its products. Name that company! NAME that COMPANY Chapter Eight 8-4

5 Everyone’s Reorganizing 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. REORGANIZATION is for EVERYONE LG1 8-5

6 Building an Organization from the Bottom Up Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures Adjust to new realities STRUCTURING an ORGANIZATION LG1 8-6

7 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. SAFETY vs. PROFIT (Making Ethical Decisions) What do you do? Save money with less safety precautions? What are the consequences? 8-7

8 The Changing Organization 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. THE CHANGING ORGANIZATION LG2 8-8

9 Source: NewsWeek, July 26, 2010 and Fast Company, March HOW MUCH CHANGES in a DECADE? LG2 The Changing Organization 8-9

10 The Development of Organization Design Mass production of goods led to complexities in organizing businesses. PRODUCTION CHANGED ORGANZIATION DESIGN 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. LG2 8-10

11 Fayol’s Principles of Organization Unity of command Hierarchy of authority Division of labor Subordination of individual interests to the general interest Authority FAYOL’S PRINCIPLES Degree of centralization Clear communication channels Order Equity Esprit de corps LG2 8-11

12 Organizations in which employees have no more than one boss; lines of authority are clear. ORGANIZATIONS BASED on FAYOL’S PRINCIPLES Rigid organizations that often don’t respond to customers quickly. LG2 Fayol’s Principles of Organization 8-12

13 Max Weber and Organizational Theory 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 WEBER’S PRINCIPLES LG2 8-13

14 Turning Principles into Organization Design 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. HIERARCHIES and COMMAND LG2 8-14

15 TYPICAL ORGANIZATION CHART LG2 Turning Principles into Organization Design 8-15

16 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. BUREAUCRATIC ORGANIZATIONS LG2 Turning Principles into Organization Design 8-16

17 Progress Assessment What do the terms division of labor and job specialization mean? What are the principles of management outlined by Fayol? What did Weber add to the principles of Fayol? PROGRESS ASSESSMENT 8-17

18 Choosing Centralized or Decentralized Authority Centralized Authority -- When decision-making is concentrated at the top level of management. CENTRALIZATION or DECENTRALIZATION? Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters is. LG3 8-18

19 Choosing the Appropriate Span of Control 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. SPAN of CONTROL LG3 8-19

20 Choosing Tall versus Flat Organization Structures 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. ORGANIZATIONAL STRUCTURES LG3 8-20

21 FLAT ORGANIZATIONAL STRUCTURE LG3 Choosing Tall versus Flat Organization Structures 8-21

22 Weighing the Advantages and Disadvantages of Departmentalization Departmentalization -- Divides organizations into separate units. Workers are grouped by skills and expertise to specialize their skills. DEPARTMENTALIZATION LG3 8-22

23 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. ADVANTAGES of DEPARTMENTALIZATION LG3 Weighing the Advantages and Disadvantages of Departmentalization 8-23

24 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. DISADVANTAGES of DEPARTMENTALIZATION LG3 Weighing the Advantages and Disadvantages of Departmentalization 8-24

25 Looking at Alternate Ways to Departmentalize WAYS to DEPARTMENTALIZE LG3 8-25

26 WAYS to DEPARTMENTALIZE LG3 Looking at Alternate Ways to Departmentalize 8-26

27 Progress Assessment Why are organizations becoming flatter? What are some reasons for having a narrow span of control in an organization? What are the advantages and disadvantages of departmentalization? What are the various ways a firm can departmentalize? PROGRESS ASSESSMENT 8-27

28 Organization Models 1. Line Organizations 2. Line-and-Staff Organizations 3. Matrix-Style Organizations 4. Cross-Functional Self- Managed Teams FOUR WAYS to STRUCTURE an ORGANIZATION LG4 8-28

29 Line Organizations 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. LINE ORGANIZATIONS LG4 8-29

30 Line-and-Staff Organizations Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees. Line personnel have authority to make policy decisions. LINE PERSONNEL LG4 8-30

31 Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees. STAFF PERSONNEL LG4 Line-and-Staff Organizations 8-31

32 SAMPLE LINE-and-STAFF ORGANIZATION LG4 Line-and-Staff Organizations 8-32

33 Matrix-Style Organizations 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. MATRIX ORGANIZATIONS Emphasis is on product development, creativity, special projects, communication and teamwork. LG4 8-33

34 SAMPLE MATRIX ORGANIZATION LG4 Matrix-Style Organizations 8-34

35 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. ADVANTAGES of the MATRIX STYLE LG4 Matrix-Style Organizations 8-35

36 It’s costly and complex. Employees may be confused about where their loyalty belongs. Good interpersonal skills and cooperative employees are a must. DISADVANTAGES of the MATRIX STYLE LG4 Matrix-Style Organizations It’s a temporary solution to a possible long-term problem. Teams are not permanent. 8-36

37 Cross-Functional Self-Managed Teams 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. CROSS-FUNCTIONAL SELF-MANAGED TEAMS LG4 8-37

38 Going Beyond Organizational Boundaries 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. GOING BEYOND ORGANIZATIONAL BOUNDARIES LG4 8-38

39 Source: CIO Magazine, Clear purpose Clear goals Correct skills Mutual accountability Shift roles when appropriate BUILDING SUCCESSFUL TEAMS Important Conditions for Small Teams LG4 Going Beyond Organizational Boundaries 8-39

40 Progress Assessment What’s the difference between line and staff personnel? What management principle does a matrix-style organization challenge? What’s the main difference between a matrix- style organization’s structure and the use of cross-functional teams? PROGRESS ASSESSMENT 8-40

41 Transparency and Virtual Organizations 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 BUSINESS LG5 Photo Courtesy of: Marc Wathieu Real Time -- The present moment or actual time in which something takes place. 8-41

42 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. TRANSPARENCY and VIRTUAL CORPORATIONS LG5 Transparency and Virtual Organizations 8-42

43 A VIRTUAL CORPORATION LG5 Transparency and Virtual Organizations 8-43

44 Douglas Pick launched DAP World from his apartment, but couldn’t produce all that was needed. WHEN YOUR WORKERS WORK for SOMEONE ELSE (Spotlight on Small Business) Started working with New Horizons to help produce and ship his earplugs. Now he sells millions of earplugs to major outlets like Walgreens and Rite Aid. 8-44

45 Benchmarking and Core Competencies 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. BENCHMARKING and CORE COMPETENCIES LG5 8-45

46 Source: Healthcare Financial Management. BenefitsConcerns Provides enough staff to operate the facility Lower employee morale Cost savingsLiability Should patients be informed Confidentiality and security BENEFITS and CONCERNS of HEALTHCARE OUTSOURCING LG5 Benchmarking and Core Competencies 8-46

47 Source: USA Today. WHICH JOBS will be OUTSOURCED NEXT? LG5 Benchmarking and Core Competencies 8-47

48 Adapting to Change 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. ADAPTING to MARKET CHANGES LG5 8-48

49 KEEP in TOUCH Amazon and its Customer Database AmazonAmazon uses information stored in databases to reach out to customers. The company s customers letting them know about music, DVDs or books they might like based on past purchases. Have you ever received an 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? LG5 Adapting to Change 8-49

50 People will become so used to having social media at their fingertips, it’ll no longer be news. There will be new gadgets; some will be improvements, others will be revolutionary. This can lead to more people working from home and more companies interacting directly with their customer base. WHEN TWITTER and FACEBOOK are OLD SCHOOL (Social Media in Business) 8-50

51 Restructuring for Empowerment 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. RESTRUCTURING LG5 8-51

52 TRADITIONAL and INVERTED ORGANIZATIONS LG5 Restructuring for Empowerment 8-52

53 Creating a Change-Oriented Organizational Culture 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. ORGANIZATIONAL CULTURE LG6 8-53

54 Managing the Informal Organization 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. FORMAL ORGANIZATION LG6 8-54

55 Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships. INFORMAL ORGANIZATION Informal organization helps foster camaraderie and teamwork among employees. LG6 Managing the Informal Organization 8-55

56 The informal system is too unstructured and emotional on its own. Informal organization may also be powerful in resisting management directives. LIMITATIONS of INFORMAL ORGANIZATIONS LG6 Managing the Informal Organization 8-56

57 Source: CIO Magazine.: CIO Magazine 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. GROUP NORMS Examples of Informal Group Norms LG6 Managing the Informal Organization 8-57

58 Progress Assessment What’s an inverted organization? Why do organizations outsource functions? What’s organizational culture? PROGRESS ASSESSMENT 8-58

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