2.2 Organizational Structure Chapter 11

Why are organizational structures changing? Employees are better qualified and more knowledgeable Multinational organizations can take local factors into account Communication is quicker and faster Today’s organizations need leaders and team efforts

What is an organizational structure? The internal, formal framework of a business that shows the way in which management is organized and how authority is passed through the organization.

Formal Structure Indicates who has OVERALL responsibility of decision-making Relationships between people working for an organization How authority is passed down (chain of command) The number of subordinates reporting to managers (span of control) Channels of communication Identify workers’ supervisors or managers

Advantages Power starts at the top and works down or maybe authority maybe passed down Divisions can be based on departments, geographic regions, or product category The levels of promotion are clear for employees The role of each employee is clear. Clear chain of command.

Disadvantages Top to bottom communication is typical and not usually efficient Horizontal communication is usually limited creating tunnel vision Is often inflexible and leads to resistance of change – managers defend their “turf” and position in the hierarchy

Tall Organizations Communication tends to be slow Span of Control is narrow Sense of remoteness at lower levels President VP Sales Manager Sales Rep Manager Sales Rep VP Finance Manager Accountant Manager Accountant VP Mfg Manager Plant Supervisor Manager Plant Supervisor

Flat Organizations Few hierarchical levels Wider span of control President Plant Mgr VP Sales VP Finance VP MfgPlant Mgr

Factors of Structure Size of business Style of leadership Reducing overhead costs leads to flattening of organizational structure Corporate objectives – expanding to new markets New technologies can make current employee types obsolete

HL – Delegation Passing Authority on to others AdvantagesDisadvantages Senior mgmnt can focus on strategic issues If task is not well- defined, delegation will not succeed Shows trusts and can create motivation Delegation will be unsuccessful if sufficient power is not also given Develops and trains staff for higher level work Managers delegate only the boring jobs. Helps staff become fulfilled through their work Encourages staff to be accountable

HL - Delayering Removal of one or more of the hierarchy from an organizational structure AdvantagesDisadvantages Reduces business costsOne-off costs- Redundancy payments (severance pay) Shortens the chain of command and should improve communication Increased workloads for those that remain Increases span of control & opportunities for delegation Fear of redundancy used to cut costs threatens security of workforce May increase motivation by less remoteness from top layers & more quality work to perform

HL – Centralized / Decentralized Centralized – Keeping all important decision-making at the head office Decentralized- Decision making passed down to local or regional managers

HL – Centralized/Decentralized Advantages - CentralizedAdvantages - Decentralized A fixed set of rules and procedures; there is little room for discussion. Local decisions reflect local conditions and customer needs. Consistent policies. Prevents conflicts between divisions and avoids confusion. Junior managers develop skills for more senior positions. Senior management considers the whole business not just one division. Empowerment at lower levels will have positive motivation effects. Central buying should allow for economies of scale. Decision-making is quicker and more flexible. Senior managers will be experienced decision-makers.

HL – Matrix Structure (Tom Peters) An organizational structure that creates project teams that cut across functional departments. This method is usually task or project focused. Finance Dept Production Dept Marketing Dept Human Resources Research & Development Project Team 1 Project Team 2 Project Team 3

HL – Matrix Structure AdvantagesDisadvantages Communication between all departments on a project or task. Less control from the top. Less chance of focusing on what is good for “my” department. Junior managers may have authority that is difficult for more senior managers to handle. Increase chance of focusing on what is good for the project or task. Faster reaction to new situations may be resisted by senior managers. More successful solutions created by cross- over ideas from many people who are specialists in their fields. Team members may have 2 leaders – the team/project leader and the original hierarchy leader. New project teams can be created quickly to address changing markets or business needs.

HL – Henry Mintzberg Theory that companies select management structures based upon “pull factors”. The better the fit of the structure to its business environment, the more likely it will be successful.

HL – Henry Mintzberg 1. Entrepreneurial Organization Flat and informal; lacks standardized procedures; very flexible 2. Bureaucracy Organization Standardization and formalized work. Tight, inflexible, vertical structure 3. Professional Organization High degree of specialization by experts that control their own work.

HL – Henry Mintzberg 4. Divisional Organization Different product lines and business units. 5. Innovative Organization New and creative industries; companies use teams of experts to form creative, flexible, functional teams

HL – The Seven-S Model (Tom Peters) Seven Elements Purpose: Increase managers awareness of less tangible but critical factors for an organization to be successful. 3 Hard “S” – Practical elements Structure, Strategy, Systems 4 Soft “S” – Less tangible elements – always changing & based upon people who work for the business Skills, Staff, Style, Shared Values

HL – The Seven-S Model Structure Shared Values Staff Systems Style Strategy Skills

HL – Informal Organizations The network of personal and social relationships developed between people within an organization. How can informal networks help companies? How can they hurt companies?

HL- Outsourcing HR Functions BenefitsLimitations Reduces costsLocal knowledge of labor market may be lost. Increases efficiency by using HR specialists. Cost savings may not be significant Provides greater expertise in areas like employment law. The process of outsourcing may give employees a sense of being controlled by outside agency. Aids corporate growth – HR can be a constraining factor. Outsourcing can never remove the responsibility of management to form good working relationships with their employees. Remaining internal HR staff can focus on strategy and policy In small business allows owners to focus on growing company, increasing profits, and gaining market share.