Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada CHAPTER 7 Organizing the Business Enterprise

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-2 Learning Objectives Discuss the elements that influence a firm’s organizational structure Explain how specialization and departmentalization as the building blocks of organizational structure Distinguish between responsibility and authority and explain the differences in decision making in centralized and decentralized organizations Explain the differences between functional, divisional, project, and international organization structures Describe the informal organization and discuss intrapreneuring

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-3 Organizational Structure The specification of the jobs to be done within a business and how those jobs are related to one another  Each organization must develop a structure that meets its specific needs

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-4 Chain of Command Organizational charts illustrate the company’s organizational structure  Shows employees’ positions and how they relate to each other  Demonstrates the flow of decision making power

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-5 Developing the Organization Structure Specialization  determining who will do what task Departmentalization  determining how those tasks should be grouped together to make the workplace more efficient

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-6 Specialization Identify the specific jobs required and designate who will do what  Small companies have fewer employees so less specialization  As organizations grow, they can hire more employees and become more efficient through specialization Advantages  Tasks performed more efficiently  Jobs easier to learn  Easier to replace people Disadvantages  Narrow jobs  Boredom  Lose sight of overall organization

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-7 Departmentalization Grouping jobs into logical units  increases efficiency through division of labour  allows for better control & coordination  top management can more easily monitor performance  profit centres are accountable Bases of Departmentalization  Functional  Customer  Product  Geographic  Process

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-8 Functional Departmentalization Based on activities performed  accounting & finance  marketing  human resource  production President & CEO Crystal Retailers Ltd. Vice President Finance Accounting & Managers Staff Vice President Marketing Managers Staff Vice President Resources Human Managers Staff

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-9 Customer Departmentalization Industrial vs. Consumer Youth vs. Adult Family vs. Singles President & CEO Travel Ways Inc. Vice President Market Seniors Travel Managers Staff Vice President Market Couples Travel Managers Staff Vice President Market Family Travel Managers Staff

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-10 Product Departmentalization Consumer office supplies vs. business office supplies Photocopiers vs. computers Tax return preparation vs. company financial statements President & CEO Business Technology Inc. Vice President Division Photocopier Managers Staff Vice President Division Computer Managers Staff Vice President Equipment Division Telecommunication s Managers Staff

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-11 Geographic Departmentalization Western vs. Eastern region Canadian vs. American North America vs. Europe President & CEO College Publishers Ltd. Vice President Western Region Managers Staff Vice President Central Region Managers Staff Vice President Eastern Region Managers Staff

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-12 Process Departmentalization Groups based on the manufacturing process  assembly  painting  drying  inspection President & CEO Hi-Tech Systems Ltd. Vice President Division Parts Fabrication Managers Staff Vice President Division Assembly Managers Staff Vice President Painting Division Managers Staff

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-13 The Combination of Various Organizational Structures Vice President Marketing Consumer Products Industrial Products

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-14 The Decision Making Hierarchy The decision making hierarchy defines who is responsible for making certain kinds of decisions Three step process 1.assign decision making tasks to employees and determine decision criteria 2.implement decisions 3.distribute authority across the organization using a centralized or a decentralized approach

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-15 Task Assignment Responsibility  the duty to complete a task  a cashier can ring up a sales order on a point of purchase terminal Authority  managerial power to make the decisions required to complete the task  a store manager can make decisions about how to treat specific transactions, or can sign to authorize cheques or returns

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-16 Task Performance Delegation  the assignment of a task, responsibility, or authority to a subordinate Accountability  liability of subordinates to complete the task that has been delegated to them by a superior

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-17 Distribution of Authority Centralization  top managers reserve most of the decision making rights for themselves Decentralization  lower- and middle-level managers have some discretion in making decisions on their own

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-18 Tall and Flat Organizations Tall organizational structure  many layers of management  too many = rigidity and bureaucracy Flat organizational structure  few layers of management  too few = chaos and inefficiency

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-19 Span of Control The number of subordinates that a manager is responsible for supervising  Wide span- many subordinates  Narrow span- very few subordinates Complicated tasks require more supervision and a narrow span of control

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-20 Types of Authority Line authority Staff authority Committee/ team authority

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-21 Line Authority The chain of command is direct and is indicated by a solid line in the organization chart  Authority flows in a straight line  Authority flows from top to bottom Line departments  departments linked directly to the production and sale of a product whose success is vital to the firm Line employees  the “doers” in a department who must make the right decisions in order make the firm a success

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-22 Staff Authority Staff that advise or provide support to line managers  do not have line authority to make decisions  assist line managers in doing their jobs more efficiently Staff authority is indicated by a dotted line in the organization chart  legal staff, marketing research

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-23 Committee & Team Authority Authority is granted to committees or work teams Committee members may include top managers and specially selected employees Committees may be permanent or temporary Teams need to have decision making authority in order to complete their tasks efficiently Teams will plan their work and complete the task independently

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-24 Basic Organizational Structures Functional Divisional Project International

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-25 Functional Structure Oldest & most commonly used method Units are formed based on the functions that must be carried out President & CEO Crystal Retailers Ltd. Vice President Finance Accounting & Managers Staff Vice President Marketing Managers Staff Vice President Resources Human Managers Staff

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-26 Advantages of Functional Structure 1.Focuses attention on the key activities that must be performed 2.Expertise develops within each functional area 3.Employees have clearly defined career paths 4.The structure is simple and easy to understand 5.Eliminates duplication of activities

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-27 Disadvantages of Functional Structure 1.Conflicts often arise between departments 2.No single function is responsible for overall organizational performance 3.Employees in each functional area have a narrow view of the organization 4.Decision making is slow 5.Coordinating highly specialized functions may be difficult

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-28 Divisional Structure Divides the organization into separate divisions Each operates as a semi-autonomous unit and profit centre Divisions can be based on key aspects of the firm’s function  products  customers  geography  process

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-29 Advantages of a Divisional Structure 1.Accommodates change and expansion 2.Increases accountability 3.Develops expertise in the various divisions 4.Encourages training for top management

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-30 Disadvantages of a Divisional Structure 1.Activities may be duplicated 2.Lack of communication among divisions 3.Adding diverse divisions may blur the focus of the organization 4.Company politics may affect the allocation of resources

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-31 Project Organization Used by organizations with new product opportunities or for special projects  Allows teams of specialists to work together as needed  Traditional structures like line authority may be too restrictive In a matrix organization, the project manager and regular line managers share authority until the project is completed

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-32 Matrix Organization

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-33 International Organization Designed to help a company succeed in international markets  international departments  concentrate production in low-cost areas and then distribute and market globally  international divisions  businesses function autonomously within local markets  integrated global organization  produce and sell products in whatever local market is appropriate without any consideration of national boundaries

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-34 Boundaryless Organization The traditional structures, or boundaries, within the firm are eliminated people, ideas and information flow freely between business groups

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-35 Team Organization Depends on project-type teams Little formal structure Employees float from project to project depending on skills and demand  Individual team “units” may change direction, explore new ideas, and try new things without dealing with rigid bureaucratic structures

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-36 Virtual Organization Has little formal structure Limited number of staff Limited administrative office Space is leased and basic support services are outsourced as needed Flexibly meets organizational needs

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-37 A Virtual Organization Model Core Organization Contracted Administrative Services Contracted Distribution & Logistics Contracted Manufacturing in Asia Contracted Sales & Marketing

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-38 Learning Organization facilitate lifelong learning and personal development of employees continually transform itself to respond to changing demands and needs Goals  improved quality  continuous improvement  performance measurement

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-39 The Informal Organization Informal organization  a network of social interactions and relationships among employees  unrelated to the formal structure  a powerful force that can alter the formal structure  Informal groups  Organizational grapevine

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-40 Grapevine An informal communication network that carries gossip & other information  communication is more rapid than formal channels  can be distorted or rumours  managers must maintain open channels of communication and respond to inaccurate information to minimize damage  managers can use it to measure employee reactions, gain information and improve decision-making

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 7-41 Intrapreneuring Maintaining the creativity and innovation inherent in a small business, but in a larger organization  As businesses grow, innovation and creativity begin to suffer  New ideas can be stifled in an effort to preserve the status quo “intrapreneurs” are like “entrepreneurs” but are employees who can help the firm to grow in exciting and creative ways