1. Business Essentials, 7th Edition Ebert/Griffin
Organizing the Business
Business Essentials, 7th Edition Ebert/Griffin
Instructor Lecture PowerPoints
PowerPoint Presentation prepared by
Carol Vollmer Pope Alverno College
© 2009 Pearson Education, Inc.

2. © 2009 Pearson Education, Inc.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
© 2009 Pearson Education, Inc. 2 2

3. © 2009 Pearson Education, Inc.
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.
© 2009 Pearson Education, Inc.

4. 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.
© 2009 Pearson Education, Inc.

5. 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
Understand the functioning of virtual and informal organizations as well as intrapreneuring
© 2009 Pearson Education, Inc.

6. 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
Organizational Charts
Clarify structure and show employees where they fit into a firm’s operations
Show the chain of command, or reporting relationships, within a company
© 2009 Pearson Education, Inc.

7. FIGURE 6.1 The Organizational Chart
© 2009 Pearson Education, Inc.

8. Determinants of Organizational Structure
Mission
Strategy
Size
Internal Environment
External Environment
Organizational structure is usually quite fluid!
© 2009 Pearson Education, Inc.

9. 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
© 2009 Pearson Education, Inc.

10. © 2009 Pearson Education, Inc.
Planning Departments
Once jobs have been specialized, they need to be grouped into logical units.
This is called departmentalization.
Here are some areas of departmentalization:
Product departmentalization
Process departmentalization
Functional departmentalization
Customer departmentalization
Geographic departmentalization
Multi forms (combinations) of departmentalization
© 2009 Pearson Education, Inc.

11. FIGURE 6.2 Multiple Forms of Departmentalization
© 2009 Pearson Education, Inc.

12. Establishing the Decision-Making Hierarchy
Centralized Organization
Top managers hold most decision-making authority
Decentralized Organization
Lower-level managers hold significant decision-making authority
© 2009 Pearson Education, Inc.

13. 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
© 2009 Pearson Education, Inc.

14. Figure 6.3 Organizational Structure and Span of Control
© 2009 Pearson Education, Inc.

15. 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
© 2009 Pearson Education, Inc.

16. 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
© 2009 Pearson Education, Inc.

17. Committee and Team Authority
Forms of Authority
Line 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
© 2009 Pearson Education, Inc.

18. Figure 6.4 Line and Staff Organization
© 2009 Pearson Education, Inc.

19. 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
© 2009 Pearson Education, Inc.

20. Figure 6.5 Functional Structure
© 2009 Pearson Education, Inc.

21. 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
© 2009 Pearson Education, Inc.

22. Figure 6.6 Divisional Structure
© 2009 Pearson Education, Inc.

23. 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 a single problem, access to resources and expertise
Disadvantages:
Loss of command and control, lack of accountability, impermanent existence
© 2009 Pearson Education, Inc.

24. FIGURE 6.7 Matrix Organization at Martha Stewart’s Omnimedia
© 2009 Pearson Education, Inc.

25. 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
© 2009 Pearson Education, Inc.

26. FIGURE 6.8 International Division Structure
© 2009 Pearson Education, Inc.

27. 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
© 2009 Pearson Education, Inc.

28. FIGURE 6.9 The Virtual Organization
© 2009 Pearson Education, Inc.

29. 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
© 2009 Pearson Education, Inc.

30. 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
© 2009 Pearson Education, Inc.

31. Key Terms 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
© 2009 Pearson Education, Inc.

32. Key Terms (cont.) profit center responsibility span of control
staff authority
staff members
tall organizational structure
work team
© 2009 Pearson Education, Inc.