ORGANIZING THE BUSINESS 6 ORGANIZING THE BUSINESS © 2007 Prentice Hall, Inc. All rights reserved.

After reading this chapter, you should be able to: L E A R N I N G O B J E C T I V E S After reading this chapter, you should be able to: Discuss the factors that influence a firm’s organizational structure. Explain specialization and departmentalization as two of the building blocks of organizational structure. Describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy. © 2007 Prentice Hall, Inc. All rights reserved.

L E A R N I N G O B J E C T I V E S (cont’d) After reading this chapter, you should be able to: Explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organizational design. Describe the informal organization and discuss intrapreneuring. © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

What Is Organizational Structure? The specification of the jobs to be done within an organization and the ways in which those jobs relate to one another Organization Charts Clarify structure and to show employees where they fit into a firm’s operations Show the chain of command, or reporting relationships, within a company © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 6.1 The Organization Chart © 2007 Prentice Hall, Inc. All rights reserved.

Determinants of Organizational Structure Mission Strategy Size Internal Environment External Environment Organizational structure is usually quite fluid! © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 6.2 Multiple Forms of Departmentalization Functional Departmentalization Geographical Departmentalization Product Departmentalization © 2007 Prentice Hall, Inc. All rights reserved.

Establishing the Decision-Making Hierarchy Centralized Organization Top managers hold most decision-making authority Decentralized Organization Lower-level managers hold significant decision-making authority © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

The Delegation Process 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 © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

Forms of Authority Line Authority Staff 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 © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 6.4 Line and Staff Organization © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 6.5 Functional Structure © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 6.6 Divisional Structure © 2007 Prentice Hall, Inc. All rights reserved.

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 single problem, access to resources and expertise Disadvantages: Loss of command and control, lack of accountability, impermanent existence © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 6.7 Matrix Organization at Martha Stewart’s Omnimedia Inc. © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 6.8 International Division Structure © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

FIGURE 6.9 The Virtual Organization © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

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 © 2007 Prentice Hall, Inc. All rights reserved.

K E Y T E R M S 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 © 2007 Prentice Hall, Inc. All rights reserved.

K E Y T E R M S (cont’d) profit center responsibility span of control staff authority staff members tall organizational structure work team © 2007 Prentice Hall, Inc. All rights reserved.