Creating a Flexible Organization Chapter Seven Creating a Flexible Organization

Learning Objectives Understand what an organization is and identify its characteristics Explain why job specialization is important Identify the various bases for departmentalization Explain how decentralization follows from delegation Understand how the span of management describes the organization Understand how the chain of command is established by using line and staff management Describe the four basic forms of organizational structure: bureaucratic, matrix, cluster, and network team Summarize the use of corporate culture, intrapreneurship, committees, coordination techniques, informal groups, and the grapevine

What Is an Organization? A group of two or more people working together to achieve a common set of goals Developing organization charts Organization chart A representation of the positions and relationships in an organization Chain of command The line of authority that extends from the highest to the lowest levels of the organization Staff (advisory) positions Jobs that are not part of the direct chain of command in the organization

A Typical Corporate Organization Chart

Five Steps to Organizing a Business Job design Divide the work into separate parts and assign those parts to positions Departmentalization Group the positions into manageable units Delegation Distribute responsibility and authority Span of management Determine the number of subordinates who will report to each manager Chain of command Designate the positions with direct authority and those that are support positions

Job Design Job specialization Rationale for specialization The separation of activities into distinct tasks and the assignment of different tasks to different people Rationale for specialization The “job” of the organization is too large for one person to accomplish A worker learning only a specific, highly specialized task should be able to learn to do it efficiently Workers do not lose time switching from one operation to another Specialization makes it easier to design machinery to assist those who do the job Specialization makes it easier to train new workers

Class Exercise Job specialization is the separation of all organizational activities into distinct tasks and the assignment of different tasks to different people. What are the advantages of job specialization? What are the disadvantages of job specialization? What types of jobs lend themselves to specialization? What types of jobs do not lend themselves to specialization?

Job Design Alternatives to job specialization Job rotation The systematic shifting of employees from one job to another to reduce boredom and dissatisfaction Job enlargement Adding tasks to a job to increase the variety of a worker’s activities Job enrichment Increasing the autonomy (self-governing) workers have in deciding how to do their jobs

Departmentalization Grouping jobs into manageable units Common bases for departmentalization By function By product By location By customer Combinations

Departmentalization by Function

Departmentalization by Product

Departmentalization by Location

Departmentalization by Customer

Delegation, Decentralization, and Centralization Assigning part of a manager’s work and power to other workers Responsibility The duty to do a job or perform a task Authority The power within the organization to accomplish an assigned task. Accountability The obligation to accomplish an assigned job or task

Steps in the Delegation Process The manager assigns responsibility The subordinate is empowered to do the task Ultimate accountability remains with the manager

Decentralization of Authority Decentralized organization Management consciously attempts to spread authority widely in the lower levels of the organization Centralized organization Authority is concentrated at the upper levels of the organization Factors favoring decentralization A complex and unpredictable business environment Decisions that carry low risk or that are unimportant Highly capable lower-level managers with strong decision-making skills Past practices of the firm in decentralizing its structure and decision-making processes

The Span of Management Wide and narrow spans of control

The Span of Management Organizational height Flat organizations Have wider spans of management and fewer levels Require managers to perform more administrative tasks and to spend more time supervising subordinates Tall organizations Have narrow spans of management and many levels Have higher administrative costs (more managers) May distort internal communications during passage of the communications through the multiple levels of organization

Debate Issue: Should Firms Use Downsizing When Employees Are No Longer Needed? YES Downsizing can lead to quicker decision making, precise accountability, and harder-working employees. Downsizing can significantly reduce a firm’s salary expense when unneeded employees are terminated. NO Employees are needed to perform their jobs or they wouldn’t have been hired in the first place. Downsizing is expensive because most companies must make severance payments and fund retirement plans.

Chain of Command: Line and Staff Management Line management position A position that is part of the chain of command; includes direct responsibility for achieving the goals of the organization Line authority—the authority line managers have to make decisions and issue directives related to organizational goals Staff management position A position created to provide support, advice, and expertise within an organization Advisory authority—the expectation that line managers will consult with staff managers before making decisions Functional authority—staff managers’ authority to make decisions and issues directives within their area of expertise

Line and Staff Management

Line-Staff Conflict Reasons for conflict Minimizing conflict Staff managers often have more formal education Staff managers are sometimes younger and more ambitious Line managers may perceive staff managers as a threat Staff managers may become angry if their recommendations are not adopted Minimizing conflict Integrate line and staff managers into one team Ensure that responsibilities are clearly defined Hold both line and staff managers accountable for results

Forms of Organizational Structure Bureaucratic structure A management system based on a formal framework of authority that is carefully outlined and precisely followed Characteristics A high level of job specialization Departmentalization by function Formal patterns of delegation A high degree of centralization Narrow spans of management, resulting in a tall organization Clearly defined line and staff positions Advantages Inflexibility helps ensure fair and equitable treatment Disadvantages Inflexibility creates problems in adapting to dynamic business environments

Forms of Organizational Structure Matrix structure A structure that combines vertical and horizontal lines of authority, usually by superimposing product departmentalization on functional departmentalization Authority flows both down and across Employees on cross-functional teams report to both the project manager in charge of the team and to their superiors in their home-base functional department

A Matrix Structure Source: Ricky W. Griffin, Management, 9th ed. Copyright © 2008 by Houghton Mifflin Company. Adapted with permission.

The Matrix Structure Disadvantages Advantages Added flexibility Increased productivity Higher morale Increases in creativity and innovation Personal development of team members Disadvantages Chain of command conflicts May take longer to resolve problems and reach solutions Personality clashes Poor communications Undefined individual roles Unclear responsibilities Difficulty in determining how to reward individual and team performance

Forms of Organizational Structure Cluster structure An organization that consists primarily of teams with no or very few underlying departments Also called “team” or “collaborative” structures Teams may move on to other projects or individual members may be reassigned to different teams and projects Strengths Small teams allows for flexibility to change direction quickly and try new things Weaknesses Employees may be concerned about job security Increased stress due to rapid changes

Forms of Organizational Structure Network structure (virtual organization) An organization in which administration is the primary function performed and most other functions such as engineering, production, and marketing are contracted out to other firms Strength Flexibility allows the organization to adjust quickly to changes Weaknesses Difficulty controlling the quality of work by other organizations Low morale and high turnover of hourly workers Vulnerability of relying on outside contractors

Additional Factors That Influence an Organization Corporate culture The inner rites, rituals, heroes, and values of a firm Indicators of corporate culture The physical setting (e.g., building and office layout) Corporate statements about itself How the company greets its guests How employees spend their time at work (alone or in groups) Cultural change is needed when The business environment changes Company performance is mediocre The company is growing or becomes a large firm

Additional Factors That Influence an Organization Intrapreneurship Intrapreneur—an employee who pushes an innovative idea, product, or process through the organization while using the organization’s resources for idea development

Elements Needed to Develop Successful Intrapreneurs Encouragement by management and organization Individual motivation Transparency, openness and communality Individual competence Enabling working environment Encouragement to innovations Development Source: J. Heinonen and K. Korvela, “How About Measuring Intrapreneurship,” Turku School of Economics and Business Administration, 2003, http://www.tukkk.fi/pki/julkaisut/konferenssit/EISB2003/Heinonen_Korvela_EISB2003.pdf#search=%22data%20%20%22intrapreneurship%22%20-edu%22

Additional Factors That Influence an Organization Committees Types Ad hoc—created for a specific short-term purpose Standing—relatively permanent; charged with performing some recurring task Task force—established to investigate a major problem or pending decision Positive aspects Members bring more information and knowledge; more accurate decisions; results communicated more effectively Negative aspects Decisions making takes longer; may reach unnecessary compromises; one person may dominate

Additional Factors That Influence an Organization Coordination techniques Managerial hierarchy The arrangement that provides for increasing authority at higher levels of management Rules and procedures Liaison to coordinate the activities of groups Committee to integrate complex coordination

Additional Factors That Influence an Organization Informal organization Patterns of behavior and interactions that stem from personal, rather than official, relationships in the organization Informal groups Formed by the members themselves to accomplish goals that may or may not be relevant to the organization Reasons for joining: the need for affiliation; agreement with the goals of the group; desire to be accepted The grapevine Informal communication network within an organization that is completely separate from—and sometimes faster than—the organization’s formal communication channels May be accurate or distorted; managers should be aware and use appropriately

Chapter Quiz Solid vertical lines on an organization chart indicate relationships among staff positions. employees. delegated positions. the chain of command. line and staff positions. The systematic shifting of employees from one job to another is called job specialization. rotation. sharing. enlargement. enrichment.

Chapter Quiz Grouping all activities according to the geographic area in which they are located is departmentalization by function. employee. product. customer. location. In a ______ organization, administrative costs are higher because more managers are needed. long flat tall short broad

Chapter Quiz The power to accomplish an assigned job is called authority. accountability. responsibility. delegation. obligation.

Answers to Chapter Quiz Solid vertical lines on an organization chart indicate relationships among staff positions. employees. delegated positions. the chain of command.(Correct) line and staff positions. The systematic shifting of employees from one job to another is called job specialization. rotation. (Correct) sharing. enlargement. enrichment.

Answers to Chapter Quiz Grouping all activities according to the geographic area in which they are located is departmentalization by function. employee. product. customer. location. (Correct) In a __________ organization, administrative costs are higher because more managers are needed. long flat tall (Correct) short broad

Answers to Chapter Quiz The power to accomplish an assigned job is called authority. (Correct) accountability. responsibility. delegation. obligation.