Organization Structure Chapter 08 McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives LO 1 Explain how differentiation and integration influence an organization’s structure LO 2 Summarize how authority operates LO 3 Define the roles of the board of directors and the chief executive officer LO 4 Discuss how span of control affects structure and managerial effectiveness LO 5 Explain how to delegate effectively 8-2

Learning Objectives (cont.) LO 6 Distinguish between centralized and decentralized organizations LO 7 Summarize the ways organizations can be structured LO 8 Identify the unique challenges of the matrix organization LO 9 Describe important integrative mechanisms 8-3

Fundamentals of Organizing  Organization chart  The reporting structure and division of labor in an organization 8-4

Conventional Organization Chart 8-5 Figure 8.1

Fundamentals of Organizing  Differentiation  the organization is composed of many different units that work on different kinds of tasks, using different skills and work methods.  Integration  these differentiated units are put back together so that work is coordinated into an overall product 8-6

Differentiation  Division of labor  The assignment of different tasks to different people or groups  Specialization  A process in which different individuals and units perform different tasks 8-7

Integration  Coordination  The procedures that link the various parts of an organization for the purpose of achieving the organization’s overall mission 8-8

Authority in Organizations  Authority  The legitimate right to make decisions and to tell other people what to do. 8-9

Authority in Organizations 8-10 Board of Directors Chief Executive Officer Top Management Team

Hierarchical Levels  Hierarchy  The authority levels of the organizational pyramid  Corporate governance  The role of a corporation’s executive staff and board of directors in ensuring that the firm’s activities meet the goals of the firm’s stakeholders 8-11

Span of Control  Span of control  The number of subordinates who report directly to an executive or supervisor  Tall, flat 8-12

Question What is the assignment of new or additional responsibilities to a subordinate? A.Subordination B.Delegation C.Designation D.Allocation 8-13

Delegation  Delegation  The assignment of new or additional responsibilities to a subordinate  Responsibility, Authority, and Accountability 8-14

Delegation  Responsibility  The assignment of a task that an employee is supposed to carry out  Accountability  The expectation that employees will perform a job, take corrective action when necessary, and report upward on the status and quality of their performance 8-15

Advantages of delegation  Leverages managers’ energy and talent  Allows managers to accomplish more than they could on their own  Helps develop effective subordinates.  Promotes a sense of being an important, contributing member of the organization, so employees tend to feel a stronger commitment, perform their tasks better, and engage in more innovation 8-16

Steps in Effective Delegation 8-17 Figure 8.2

Decentralization  Centralized organization  An organization in which high-level executives make most decisions and pass them down to lower levels for implementation  Decentralized organization  An organization in which lower-level managers make important decisions 8-18

The Horizontal Structure  Line departments  Units that deal directly with the organization’s primary goods and services  Staff departments  Units that support line departments 8-19

The Functional Organization  Functional organization  Departmentalization around specialized activities such as production, marketing, and human resources. 8-20

The Functional Organization 8-21 Figure 8.3

Advantages of Functional Organizations 1.Economies of scale can be realized 2.Effective monitoring of the environment 3.Performance standards better maintained 4.Greater opportunity for specialized training and skill development 5.Technical specialists are relatively free of administrative work 6.Decision making and lines of communication are simple and clearly understood 8-22

The Divisional Organization  Divisional organization  Departmentalization that groups units around products, customers, or geographic regions. 8-23

Advantages of Divisional Organizations 1.Information needs are managed more easily 2.People have a full-time commitment to a particular product line 3.Task responsibilities are clear 4.People receive broader training 8-24

The Divisional Organization 8-25 Figure 8.4

The Matrix Organization  Matrix organization  An organization composed of dual reporting relationships in which some managers report to two superiors—a functional manager and a divisional manager 8-26

Matrix Organizational Structure 8-27 Figure 8.5

Advantages of a Matrix Design 8-28 Table 8.2

Disadvantages of a Matrix Design 8-29 Table 8.3

The Network Organization  Network organization  A collection of independent, mostly single- function firms that collaborate on a good or service 8-30

The Network Organization 8-31 Figure 8.7

The Network Organization  Dynamic network  Temporary arrangements among partners that can be assembled and reassembled to adapt to the environment  Broker  A person who assembles and coordinates participants in a network 8-32

Question ___________ is establishing common routines and procedures that apply uniformly to everyone. A.Coordination by standardization B.Coordination by plan C.Coordination by mutual adjustment D.Coordination by service 8-33

Coordination by Standardization  Standardization  Establishing common routines and procedures that apply uniformly to everyone.  Formalization  The presence of rules and regulations governing how people in the organization interact. 8-34

Coordination by Plan  Coordination by plan  Interdependent units are required to meet deadlines and objectives that contribute to a common goal 8-35

Coordination by Mutual Adjustment  Coordination by mutual adjustment  Units interact with one another to make accommodations to achieve flexible coordination 8-36

Reducing the Need for Information  Slack resources  extra resources on which organizations can rely in a pinch so that if they get caught off guard, they can still adjust  Creating self-contained tasks  changing from a functional organization to a product or project organization and giving each unit the resources it needs to perform its task 8-37

Increasing Information-Processing Capability 1.Direct contact among managers who share a problem 2.Liaison roles to handle communication between two departments 3.Task forces to brought together temporarily to solve a common problem 4.Teams--permanent interdepartmental decision-making groups 5.Product, program, or project managers 6.Matrix organizations 8-38

Managing High Information- Processing Demands 8-39 Figure 8.8

Destination CEO: Royal Phillips Electronics  Do you think Philips uses a centralized or decentralized organization? Why?  In which type of organizational design would you prefer to work? Why? 8-40