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McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Introduction to Business Dr. H. Ronald Moser Cumberland University.

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Presentation on theme: "McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Introduction to Business Dr. H. Ronald Moser Cumberland University."— Presentation transcript:

1 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Introduction to Business Dr. H. Ronald Moser Cumberland University

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

3 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 PROFILE

4 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. EVERYONE’S REORGANIZING 8-4 Reorganization is for Everyone

5 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 and Organization 8-5 EVERYONE’S REORGANIZING

6 Building an Organization from the Bottom Up Basic principles of organization design are usually the same for large and small business. The principles of organization design, such as division of labor, specialization, departmentalization, and other structural decisions are much the same for large firms and for small firms. Structuring and Organization 8-6 EVERYONE’S REORGANIZING Ron’s Place

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 fewer safety precautions? What are the consequences? 8-7 EVERYONE’S ROORGANIZING Building an Organization from the Bottom Up

8 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 8-8

9 The Development of Organization Design Mass production of goods led to complexities in organizing businesses. Production Changed Organization Design Economies of Scale -- Companies can reduce their production costs by purchasing raw materials in bulk, but what about businesses such as small retailers who cannot buy in bulk. The average cost of goods decreases as production levels rise. 8-9 THE CHANGING ORGANIZATION

10 Unity of command – Only one boss. “I am the man.” Hierarchy of authority – All workers should know to whom they report. Division of labor – Functions are divided into areas of specialization. Subordination of individual interests to the general interest – Workers should work as a team. Authority – Right to give orders. Fayol’s Principles of Organization Degree of centralization – Depends on the size or the organization. Clear communication channels – Should be able to reach others quickly. Order – Proper locations. Equity – Treat employees and peers with respect. Esprit de corps –A spirit of pride and loyalty should be created among people in the firm THE CHANGING ORGANIZATION The Development of Organization Design Production Marketing Finance Ron’s Place

11 Organizations in which employees have no more than one boss; lines of authority are clear. Organizations Based on Fayol’s Principles Rigid organizations often don’t respond to customers quickly The Development of Organization Design THE CHANGING ORGANIZATION

12 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 THE CHANGING ORGANIZATION The Development of Organization Design

13 Max Weber and Organizational Theory Weber believed that large organizations demanded clearly established rules and guidelines to be followed precisely. In other words, he was in favor of a Bureaucratic Organization. Bureaucratic organizations are known for many rules and regulations that employees are expected to follow. Max Weber, the advocate of bureaucracy believed that firms would run smoothly if employees followed orders and left the decision-making to management. Employees usually lack empowerment in bureaucratic organization THE CHANGING ORGANIZATION Turning Principles into Organization Design

14 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. Hierarchies and Command 8-14 THE CHANGING ORGANIZATION Chain of Command -- The line of authority that moves from the top of the hierarchy to the lowest level or rank- in-file employees.

15 Typical Organization Chart 8-15 Turning Principles into Organization Design THE CHANGING ORGANIZATION This is a rather standard chart with managers for major functions and supervisors reporting to the managers. Each supervisor manages three employees.

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. Bureaucratic organizations 8-16 THE CHANGING ORGANIZATION Turning Principles into Organization Design Bureaucracies can annoy customers.

17 Choosing Centralized or Decentralized Authority- Centralized Authority -- When decision- making is concentrated at the top level of management. In most discount and large chain stores like Sears or Target stores, decisions are made at the companies’ headquarters or top level of management. Decentralized Authority -- When decision-making is delegated to lower- level managers and employees more familiar with local conditions than headquarters. Stores selling fashion goods would be example such as department stores, or Home Depot and Lowe’s selling basic items DECISIONS TO MAKE IN STRUCTURING ORGANIZATIONS

18 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 8-18 DECISIONS TO MAKE IN STRUCTURING ORGANIZATIONS

19 Choosing Tall versus Flat Organization Structures Tall Organization Structures -- An organizational structure in which the organization chart would be tall because of the various levels of management. Some have as many as 14 levels, and the span of control is small (few people reporting to each manager) Organizational Structures 8-19 DECISIONS TO MAKE IN STRUCTURING ORGANIZATIONS Flat Organization Structures -- An organizational structure that has few layers of management and a broad span of control. Structures determine the way the company responds to employee and customer needs.

20 Flat Organizational Structure 8-20 Choosing Tall versus Flat Organization Structures DECISIONS TO MAKE IN STRUCTURING ORGANIZATIONS Flat Organization Structures -- An organizational structure that has few layers of management and a broad span of control (many people reporting to each manager).

21 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 8-21 DECISIONS TO MAKE IN STRUCTURING ORGANIZATIONS The design department. The production department. The marketing department. The accounting department.

22 Employees develop skills and progress within a department as they master skills. The company can achieve economies of scale by centralizing all the resources it needs and locate various experts in that area. Employees can coordinate work within the function and top management can easily direct activities. Advantages of Departmentalization 8-22 Weighing the Advantages and Disadvantages of Departmentalization DECISIONS TO MAKE IN STRUCTURING ORGANIZATIONS

23 Departments may not communicate well between departments. Employees may identify with their department’s goals rather than the organization’s. The company’s response to external changes may be slow. People may not be trained to take different managerial responsibilities, instead they become specialists. Department members may engage in group thinking and may need outside input. Disadvantages of Departmentalization 8-23 Weighing the Advantages and Disadvantages of Departmentalization DECISIONS TO MAKE IN STRUCTURING ORGANIZATIONS Which external changes?

24 Looking at Alternate Ways to Departmentalize Ways to Departmentalize 8-24 DECISIONS TO MAKE IN STRUCTURING ORGANIZATIONS

25 Looking at Alternate Ways to Departmentalize Ways to Departmentalize 8-25 DECISIONS TO MAKE IN STRUCTURING ORGANIZATIONS

26 1. Line Organizations. 2. Line-and-Staff Organizations. 3. Matrix-Style Organizations. 4. Cross-Functional Self-Managed Teams. Four Ways to Structure and Organization 8-26 ORGANIZATION MODELS

27 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 ORGANIZATION MODELS “Its my way or the highway.”

28 Line-and-Staff Organizations Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees. The military and many small businesses are organized this way. Line personnel have authority to make policy decisions. Line Personnel 8-28 ORGANIZATION MODELS

29 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 8-29 ORGANIZATION MODELS Line-and-Staff Organizations I am doing marketing research for my company. I am writing a legal brief for my company.

30 Sample Line-and Staff Organization 8-30 Line-and-Staff Organizations ORGANIZATION MODELS Members of a legal department are considered staff personnel in a line-and-staff organization. Staff personnel serve in an advisory role and can work with colleagues and department at every level on the firm’s hierarchy. A lawyer employed in the legal department of a manufacturing corporation. Would be classified as a staff position.

31 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 ORGANIZATION MODELS

32 Sample Matrix Organization 8-32 ORGANIZATION MODELS Matrix-Style Organizations In a matrix organizations, project managers are in charge of teams made up of members of several departments. In this case project manager 2 supervises employees A,B,C, and D. These employees are accountable not only to project manager 2 but also to the head of their individual department. A group of teams. Within the organization. Working on specific projects.

33 Managers have flexibility in assigning people to projects. Interorganizational cooperation and teamwork is encouraged. Creative solutions to product development problems are produced. It makes for better efficient use of organizational resource s. Advantages of Matrix Style 8-33 Matrix-Style Organizations ORGANIZATION MODELS

34 It’s costly and complex. Employees may be confused about where their loyalty belongs. Good interpersonal skills and cooperative employees are a must. It’s a temporary solution to a possible long- term problem. Teams are not permanent. Disadvantages of the Matrix Style 8-34 Matrix-Style Organizations ORGANIZATION MODELS

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

36 Cross-Functional Self-Managed Teams 8-36 ORGANIZATION MODELS Cross-functional teams and self- managed teams are groups of employees from different departments who work together on a long-term basis (as opposed to temporary teams established in a matrix structure.)

37 Cross-Functional Self-Managed Teams 8-37 ORGANIZATION MODELS Many firms practice Cross-Functional Planning, which means that instead of working alone -- middle managers work together as a team to develop tactical plans that consider the objectives of all the functional areas. In developing his tactical plans, Scott, the marketing manager, has discussed and reviewed his plans with the manufacturing manager, the advertising manager, and the field service manager.

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 ORGANIZATION MODELS “Why is it that your product never works very long?” What does that mean?

39 Clear purpose. Clear goals. Correct skills. Mutual accountability. Shift roles when appropriate. Building Successful Teams Important Conditions for Small Teams 8-39 ORGANIZATION MODELS Going Beyond Organizational Boundaries

40 Transparency and Virtual Organizations Real Time -- The present moment or actual time in which something takes place MANAGING THE INTERACTIONS AMONG FIRMS The Internet has allowed companies to send real-time data to organizational partners as they are developed or collected. The result is transparency. 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.

41 Transparency -- When a company is so open to other companies that electronic information is shared as if the companies were one. With this integration, two companies can work as closely as two departments in traditional firms. Virtual Corporation -- A temporary networked organization made up of replaceable firms that join and leave as needed Transparency and Virtual Organizations MANAGING THE INTERACTIONS AMONG FIRMS Germany China

42 A Virtual Corporation 8-42 Transparency and Virtual Organizations MANAGING THE INTERACTIONS AMONG FIRMS A virtual corporation has no permanent ties to the firms that do its production, distribution, legal and other work. Such firms are flexible enough to adapt to changes in the market quickly.

43 Douglas Pick launched DAP World from his apartment, but couldn’t produce all that was needed. MANAGING THE INTERACTIONS AMONG FIRMS 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 Transparency and Virtual Organizations When You Workers Work for Someone Else (Spotlight on Small Business)

44 BENCHMARKING and CORE COMPETENCIES 8-44 Benchmarking – The process of rating an organization’s practices, processes, and products against the best of the world. Benchmarking compares and organization’s practices, processes, and products against the world’s best. Target may compare itself to Wal- Mart to see what Wal-Mart is doing better. Core Competencies -- The functions an organization can do as well as or better than any other organization in the world. If a company can’t match a competitor, they may try to outsource.

45 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, but what about those old people who did not grow up with the computer. ADAPTING to CHANGES 8-45 Adapting to Market Changes

46 Keep in Touch Amazon and its Customer Database Amazon.comAmazon.com uses information stored in databases to reach out to customers. The company s customers letting them know about CDs, 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? 8-46 ADAPTING to CHANGES

47 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. Maybe nurses at the top. Restructuring The manager’s job is to assist and support frontline workers, not boss them ADAPTING to CHANGES

48 Traditional and Inverted Organization 8-48 Restructuring for Empowerment ADAPTING to CHANGES An organization that has contract people at the top and the chief executive officer at the bottom of the organization chart.

49 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. Cultural values are those values of greatest importance to the organization. They are usually written by the CEO of the organization ADAPTING to CHANGES Some of the best organizational cultures emphasize service. We are caring people. Culture is shown in stories, traditions and myths.

50 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. Formal Organization 8-50 ADAPTING to CHANGES No organization can be effective without formal and informal organization.

51 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 ADAPTING to CHANGES Managing the Informal Organization

52 The informal system is too unstructured and emotional on its own. Informal organization may also be powerful in resisting management directives. Limitation of Informal Organizations 8-52 Managing the Informal Organization ADAPTING to CHANGES

53 3-53 The End!


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