1. Organizing the Business Firm
Chapter 7
Organizing the Business Firm

2. Learning Objectives
Discuss the elements that influence a firm’s organizational structure
Describe specialization and departmentalization as the building blocks of organizational structure
These learning objectives are based upon those at the beginning of the chapter. For a review of learning objectives, see the summary at the end of the chapter, as well as the list of key terms.
Objectives: p.184.
Summary: p

3. Learning Objectives
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 and describe the most popular forms of organizational design
Define the informal organization and discuss intrapreneuring
These learning objectives are based upon those at the beginning of the chapter. For a review of learning objectives, see the summary at the end of the chapter, as well as the list of key terms.
Objectives: p.184.
Summary: p

4. 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
Size, technology, and changes in environmental circumstances affect the structure
Discussed on pages
Activities:
Review Questions: #1.

5. Chain of Command
Organizational charts illustrate the company’s organizational structure
Shows employees’ positions and how they relate to each other
Demonstrates the the flow of decision making power
Discussed on pages 187.
Activities:
Review Questions: #3,4.

6. 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
Discussed on page Each of these concepts is discussed in-depth on the following slides.
Activities:
Have students explain organizational structure based upon their involvement in group projects. They can address specialization (what student does what task and why), and departmentalization (which students work together in small groups to complete tasks).
Analysis Questions: #7

7. Specialization Identify the tasks required
Identify the employees to complete the tasks
Job specialization
Using employees with special expertise to perform specialized tasks
Small organizations have fewer employees to complete all tasks (less specialization)
As organizations grow, they can hire more employees and become more efficient through specialization
Discussed on page
Activities:
Review Questions: #7.

8. Departmentalization Grouping jobs into logical units
Increases efficiency through division of labour
Allows for better control & coordination
Top management can more easily monitor performance
Bases of departmentalization
Customer
Product
Process
Geographic
Functional
Discussed on page
Activities:
Review Questions: #7.

9. Profit Centres
Department units responsible for their own costs and profits
A “mini-business” unit
A means of assessing profits from sales in a particular area
Discussed on page 189.
Activities:
Have students discuss the benefits of using the profit centre approach. What firms would they suggest would be good candidates for such a structure?

10. Customer Departmentalization
Departmentalization according to the types of customers likely to buy a given product
Salespeople tend to specialize and gain expertise in their departments
Discussed on page 189.
Activities:
Let students give examples of firms which would be suitable for the customer-based structure.
Review Questions: #7.

11. Product Departmentalization
Departmentalization according to the products being created or sold
Consumer office supplies vs. Business office supplies
Photocopiers vs. Computers
Tax return preparation vs. Company financial statements
Discussed on page 189.
Activities:
Review Questions: #7.

12. Process Departmentalization
Departmentalization according to the production process used to create a good or service
Assembly
Painting
Discussed on page 189.
Activities:
Let students give examples of firms which would be suitable for the process-based structure.
Review Questions: #7.

13. Geographic Departmentalization
Departmentalization according to the area of the country or world supplied
Western vs. Eastern region
Canadian vs. American
Discussed on page 190.
One of the simplest and most frequently used approaches to departmentalization.
Activities:
Review Questions: #7.

14. Functional Departmentalization
Departmentalization according to functions or activities
accounting & finance
marketing
human resource
Discussed on page 190.
Activities:
Review Questions: #7.

15. The Combination of Various Organizational Structures
Discussed on pages This is a rendition of Figure 7.3 on page 190 which demonstrates how different bases of organizational structure are often combined into a single organization design.
Activities:
Review Questions: #7.

16. The Decision Making Hierarchy
The decision making hierarchy defines who is responsible for making certain kinds of decisions
Three step process
Assigning tasks to employees
Performing tasks
Distributing authority across the organization using a centralized or a decentralized approach
Discussed on page
Activities:
Review Questions: #7.

17. Task Assignment Responsibility Authority
The duty to perform an assigned task
a cashier can ring up a sales order on a point of purchase terminal
Authority
The power to make the decisions necessary to complete a task
a store manager can make decisions about how to treat specific transactions, or can sign to authorize cheques or returns
Discussed on page 191.
Activities:
Analysis Questions: #9.

18. Task Performance Delegation Accountability
The assignment of a task, a responsibility, or authority by a manager to a subordinate
Accountability
Liability of subordinates for accomplishing tasks assigned by managers
Discussed on page
Activities:
Analysis Questions: #9.

19. Distribution of Authority
Centralization
Top managers retain most of the decision making rights for themselves
Decentralization
Lower- and middle-level managers are allowed to make significant decisions
Discussed on page
Activities:
Invite students to give examples of what kinds of organizations should be centralized? Why do they feel that way? Are there disadvantages to centralization? What are they? Are there organizations that should be decentralized? The objective of the discussion is to illustrate that there is no “right way” to distribute authority in organizations. It is not “one size fits all”!

20. Span of Control The number of people managed by one manager
Wide span
many subordinates
Narrow span
very few subordinates
Complicated tasks require more supervision and a narrow span of control
Discussed on page
Activities:
Analysis Questions: #9.

21. Types of Authority Line authority Staff authority
Committee/ team authority
Discussed on pages This is a title slide. Each concept is discussed separately on the following slides.
Activities:
Ask students to give an example of a “line position” and a ”staff position” in their school.
Analysis Questions: #2.

22. 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 sales of a specific product
Line employees
The “doers” in a department who must make the right decisions in order make the firm a success
Discussed on pages 194.
Activities:
Ask students to give an example of a “line position” and a ”staff position” in their school.
Analysis Questions: #2.

23. Staff Authority
Authority that is based on expertise 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
Discussed on pages 194.
Activities:
Ask students to give an example of a “line position” and a ”staff position” in their school.

24. 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
Discussed on pages
Activities:
The students often work on group projects. Use this analogy to demonstrate a team or committee authority system. Then, ask students to work in groups to develop company profiles for the types of firms that will use team/committee authority structures.

25. A Line and Staff Organization Chart
Discussed on page This is an example for line and staff positions based upon Figure 7.4 on page 195.
Activities:
Ask students to give an example of a “line position” and a ”staff position” in their school.

26. Basic Organizational Structures
Functional
Divisional
Project
International
Discussed on pages This is a title slide. Each concept is discussed separately on the following slides.
Activities:
Have students contrast the departmentalization and organizational structures components of the chapter. They must understand that while one looks are task assignment and divisional design, the other looks at the overall organizational design. These two components come together to create similar structures. It is important that they understand that the functional structure essentially the same as the functional organization presented earlier.
Analysis Questions: #5,8.

27. Functional Structure Oldest & most commonly used Method
Units are formed based on the functions that must be carried out
Discussed on page 196.
Activities:
Have students compare the functional structure for basic organizational structure, back to the functional structure for departmentalization. Make sure they see the the functional method of departmentalizing, and the functional method of basic organizational structure, accomplish the same goal.
Analysis Questions: #7.

28. Advantages of Functional Structure
Focuses attention on the key activities that must be performed
Expertise develops within each functional area
Employees have clearly defined career paths
The structure is simple and easy to understand
Eliminates duplication of activities
Discussed on page This is summarized from the first half of Table 7.1 on page 196.
Activities:
Have students give an example for how each of the advantages in the list applies to functional structure.

29. Disadvantages of Functional Structure
Conflicts often arise between departments
No single function is responsible for overall organizational performance
Employees in each functional area have a narrow view of the organization
Coordinating highly specialized functions may be difficult
Decision making is slow
Discussed on page 196.
Activities:
Have students compare the functional structure for basic organizational structure, back to the functional structure for departmentalization. Make sure they see the the functional method of departmentalizing, and the functional method of basic organizational structure, accomplish the same goal.

30. Divisional Structure
Divides the organization into separate divisions each of which operates as a semi-autonomous unit
Divisions can be based on key aspects of the firm’s function
Products
Customers
Geography
Process
Discussed on pages
Activities:
Have students compare the divisional structure for basic organizational structure, back to the various divisional structures for departmentalization. Make sure they see that the divisional method of departmentalizing, and the divisional method of basic organizational structure, accomplish the same goal.

31. Advantages of a Divisional Structure
Accommodates change and expansion
Increases accountability
Develops expertise in the various divisions
Encourages training for top management
Discussed on pages This summarizes the first part of Table 7.2 which summarizes the advantages of the divisional structure.
Activities:
Have students compare the divisional structure for basic organizational structure, back to the various divisional structures for departmentalization. Make sure they see that the divisional method of departmentalizing, and the divisional method of basic organizational structure, accomplish the same goal.

32. Disadvantages of a Divisional Structure
Activities may be duplicated
Lack of communication among divisions
Adding diverse divisions may blur the focus of the organization
Company politics may affect the allocation of resources
Discussed on page This summarizes the second part of Table 7.2 which summarizes the advantages of the divisional structure.
Activities:
Have students compare the divisional structure for basic organizational structure, back to the various divisional structures for departmentalization. Make sure they see that the divisional method of departmentalizing, and the divisional method of basic organizational structure, accomplish the same goal.

33. Project Organization
An organization that uses teams of specialists to complete specific projects
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
May involve the “matrix organization” where project manager and regular line managers share authority until the project is completed
Discussed on page
Activities:
Analysis Questions: #5,8.

34. International Organization
Firms that have operations in many countries
May establish an international division to coordinate these activities
Concentrate production in low-cost areas and then distribute and market globally
Allow each of their businesses to function autonomously within local markets
Produce and sell products in whatever local market is appropriate without any consideration of national boundaries
Discussed on pages
Analysis:
Have students work in groups of two or three to complete this library-based research assignment. Students should research two international companies. Then, they should try to determine how the companies structure their international operations. They can be asked to present their findings to the class. An optional ending to this assignment is to have the students evaluate whether the international organization seems to be appropriate given the current and future growth opportunities facing the firm.

35. International Division Structure
Discussed on pages This illustration depicts Figure 7.6 on page 99.
Analysis:
Have students work in groups of two or three to complete this library-based research assignment. Students should research two international companies. Then, they should try to determine how the companies structure their international operations. They can prepare an organizational structure for the companies they select, demonstrating how the company does, or could, organize their international business.

36. Boundaryless Organization
The original structures, or boundaries, within the firm are eliminated
Useful to open firm up and facilitate open communication across the company
Discussed on pages

37. Team Organization
Depends on project-type teams of workers with little or no underlying functional hierarchy
Employees float from project to project depending on firm’s resources and employees’ skills
Individual team “units” may change direction, explore new ideas, and try new things without dealing with rigid bureaucratic structures
Discussed on page

38. Virtual Organization Has little or no formal structure
Limited number of staff
Limited administrative office
Space is leased and basic support services are outsourced as needed
Maximum flexibility to meet organizational needs
Discussed on page 202.

39. A Virtual Organization Model
Contracted
Administrative
Services
Contracted
Manufacturing
in Asia
Core Organization
Discussed on pages 202. This diagram depicts Figure 7.7.
Contracted
Sales &
Marketing
Contracted
Distribution &
Logistics

40. The Informal Organization
A naturally occurring network of relationships and communications that develops between staff despite the nature of the formal structure
A powerful force that can alter the formal structure
Discussed on pages
Activities:
Review Questions: #6.

41. Grapevine
An informal communication method that carries gossip & other information throughout the firm
Communication is more rapid than formal channels
Can be used creatively by management to facilitate the maintenance of the formal system
Discussed on page 204.
Activities:
Ask students if there is a “grapevine” operating in their school. How do they know which classes to take? Which faculty to take? Do they feel that the “grapevine” is an efficient or inefficient communication system?

42. Intrapreneuring
The process of creating and maintaining the innovation and flexibility 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
Discussed on page 205.
Activities:
Application exercises #10