Business Structures CRITICAL THINKING EXERCISES You are a

Business Structures

CRITICAL THINKING EXERCISES You are a new manager for a gardens seeds and supply company with 95 employees. The company has grown into a bureaucracy and needs to be more flexible and responsive. You decide to change the strategy of the company to meet the quality needs of the customers in a timelier manner and to create a new web page that allows customers to order your products online. The company has always done things in a traditional way, not wanting to transition to the Digital Age. You must come up with some recommendations for reorganizing the structure of the company to achieve these new strategic objectives. • Questions: • Where would you start? • What barriers to change might there be? • Why is it important to change the structure when you change the strategy? • Would you try to do this on your own, form a team to come up with a structure or hire an outside consultant to come in and design the structure and new jobs or do all three? 29–

Learning Objectives • After completing this session, you should be able to: ØIdentify the factors that influence managers’ choice of an organizational structure. ØExplain how managers group tasks into jobs that are motivating and satisfying for employees. ØDescribe the types of organizational structures managers can design, and explain why they choose one structure over another. ØExplain why there is a need to both centralize and decentralized authority. 39–

Learning Objectives (cont’d) ØExplain why managers must coordinate and integrate between jobs, functions, and

Session Outline • Designing Organizational Structure ØThe Organizational Environment ØStrategy ØTechnology ØHuman Resources • Grouping Tasks into Jobs: Job Design ØJob Enlargement and Job Enrichment ØThe Job Characteristics Model • Grouping Jobs into Functions and Divisions ØFunctional Structure © Copyright Mc. Graw-Hill. All rights reserved. 59–

Session Outline (cont’d) • Grouping Jobs into Functions and Divisions (cont’d) ØFunctional Structure ØDivisional Structure: Product, Market, Geographic ØMatrix and Product Team Designs ØHybrid Structure © Copyright Mc. Graw-Hill. All rights reserved. 69–

Organizational Structure ØThe organizational structure, control systems, culture, and human resource management systems that together determine how efficiently and effectively organizational resources are used. © Copyright Mc. Graw-Hill. All rights reserved. 79–

Designing Organizational Structure • Organizing ØThe process by which managers establish working relationships among employees to achieve goals. • Organizational Structure ØFormal system of task and reporting relationships showing how workers use resources. • Organizational design ØThe process by which managers make specific choices that result in a particular kind of organizational structure. © Copyright Mc. Graw-Hill. All rights reserved. 89–

Factors Affecting Organizational Structure © Copyright Mc. Graw-Hill. All rights reserved. Figure 9. 1

Determinants of Structure • The Organizational Environment ØThe quicker the environment changes, the more problems face managers. ØStructure must be more flexible (i. e. , decentralized authority) when environmental change is rapid. © Copyright Mc. Graw-Hill. All rights reserved. 109–

Determinants of Structure • Strategy ØDifferent strategies require the use of different structures. • A differentiation strategy needs a flexible structure, low cost may need a more formal structure. • Increased vertical integration or diversification also requires a more flexible structure. © Copyright Mc. Graw-Hill. All rights reserved. 119–

Determinants of Structure • Technology ØThe combination of skills, knowledge, tools, equipment, computers and machines used in the organization. ØMore complex technology makes it harder for managers to regulate the organization. © Copyright Mc. Graw-Hill. All rights reserved. 129–

Determinants of Structure • Technology (cont’d) ØTechnology can be measured by: • Task variety: the number of new problems a manager encounters. • Task analyzability: the availability of programmed solutions to a manager to solve problems. ØHigh task variety and low analyzability present many unique problems to managers. • Flexible structure works best in these conditions. ØLow task variety and high analyzability allow managers to rely on established procedures. © Copyright Mc. Graw-Hill. All rights reserved. 139–

Types of Technology • Small Batch Technology ØSmall quantities of one-of-a-kind products are produced by the skills of the workers who work together in small groups. • Appropriate structure is decentralized and flexible. • Mass Production Technology ØAutomated machines that are programmed to make high volumes of standard products. • Formal structure is the best choice for workers who must perform repetitive tasks. © Copyright Mc. Graw-Hill. All rights reserved. 149–

Types of Technology • Continuous Process Technology ØTotally mechanized systems of automatic machines. • A flexible structure is necessary to allow workers to react quickly to unexpected problems. • Information Technology (IT) ØKnowledge management • The sharing and integrating of expertise within and between functions and divisions through realtime, interconnected IT that allows for new kinds of tasks and job reporting relationships. © Copyright Mc. Graw-Hill. All rights reserved. 159–

Determinants of Structure • Human Resources ØHighly skilled workers whose jobs require working in teams usually need a more flexible structure. ØHigher skilled workers (e. g. , CPA’s and doctors) often have internalized professional norms. • Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization. © Copyright Mc. Graw-Hill. All rights reserved. 169–

Job Design • Job Design ØThe process by which managers decide how to divide tasks into specific jobs. ØThe appropriate division of labor results in an effective and efficient workforce. • Job Simplification ØThe process of reducing the tasks each worker performs. • Too much simplification and boredom results. © Copyright Mc. Graw-Hill. All rights reserved. 179–

Job Design • Job Enlargement ØIncreasing the number of tasks for a given job to reduce boredom. • Job Enrichment ØIncreasing the degree of responsibility a worker has over a job. Øcan lead to increased worker involvement. © Copyright Mc. Graw-Hill. All rights reserved. 189–

The Job Characteristics Model Source: Adapted from J. R. Hackman and G. R. Oldham,

Job Characteristics Model © Copyright Mc. Graw-Hill. All rights reserved. 209–

Grouping Jobs into Functions • Functional Structure ØAn organizational structure composed of all the departments that an organization requires to produce its goods or services. ØAdvantages • Encourages learning from others doing similar jobs. • Easy for managers to monitor and evaluate workers. ØDisadvantages • Difficult for departments to communicate with others. • Preoccupation with own department and losing sight of organizational goals. © Copyright Mc. Graw-Hill. All rights reserved. 219–

Divisional Structures • Divisional Structure ØAn organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer • Divisions create smaller, manageable parts of a firm. • Divisions develop a business-level strategy to compete. • Divisions have marketing, finance, and other functions. • Functional managers report to divisional managers who then report to corporate management. © Copyright Mc. Graw-Hill. All rights reserved. 229–

Types of Divisional Structures • Product Structure ØCustomers are served by self-contained divisions that handle a specific type of product or service. • Allows functional managers to specialize in one product area • Division managers become experts in their area • Removes need for direct supervision of division by corporate managers • Divisional management improves the use of resources © Copyright Mc. Graw-Hill. All rights reserved. 239–

Product, Market, and Geographic Structures Figure 9. 4 © Copyright Mc. Graw-Hill. All rights

Types of Divisional Structures (cont’d) • Geographic Structure ØEach regional or a country or area with customers with differing needs is served by a local selfcontained division producing products that best meet those needs. ØGlobal geographic structure • Different divisions serve each world region when managers find different problems or demands across the globe. • Generally, occurs when managers are pursuing a multidomestic strategy © Copyright Mc. Graw-Hill. All rights reserved. 259–

Types of Divisional Structures (cont’d) • Market (Customer) Structure ØEach kind of customer is served by a self-contained division ØGlobal market (customer) structure • Customers in different regions buy similar products so firms can locate manufacturing facilities and product distribution networks where they decide is best. • Firms pursuing a global strategy will use this type of structure. © Copyright Mc. Graw-Hill. All rights reserved. 269–

Global Geographic and Global Product Structures © Copyright Mc. Graw-Hill. All rights reserved. Figure

Matrix Design Structure • Matrix Structure ØAn organizational structure that simultaneously groups people and resources by function and product. • Results in a complex network of superior-subordinate reporting relationships. • The structure is very flexible and can respond rapidly to the need for change. • Each employee has two bosses (functional manager and product manager) and possibly cannot satisfy both. © Copyright Mc. Graw-Hill. All rights reserved. 289–

Matrix Structure © Copyright Mc. Graw-Hill. All rights reserved. Figure 9. 7 299–

Product Team Design Structure • Product Team Structure ØThe members are permanently assigned to the team and empowered to bring a product to market. ØAvoids problems of two-way communication and the conflicting demands of functional and product team bosses. ØCross-functional team is composed of a group of managers from different departments working together to perform organizational tasks. © Copyright Mc. Graw-Hill. All rights reserved. 309–

Product Team Structure © Copyright Mc. Graw-Hill. All rights reserved. Figure 9. 7 319–

Hybrid Structures • Hybrid Structure ØThe structure of a large organization that has many divisions an simultaneously uses many different organizational structures • Managers can select the best structure for a particular division—one division may use a functional structure, another division may have a geographic structure. • The ability to break a large organization into smaller units makes it easier to manage. © Copyright Mc. Graw-Hill. All rights reserved. 329–

Target’s Hybrid Structure © Copyright Mc. Graw-Hill. All rights reserved. Figure 9. 8 339–

Coordinating Functions: Allocating Authority • Authority ØThe power to hold people accountable for their actions and to make decisions concerning the use of organizational resources. • Hierarchy of Authority ØAn organization’s chain of command, specifying the relative authority of each manager. • Span of Control: refers to the number of workers a manager manages. © Copyright Mc. Graw-Hill. All rights reserved. 349–

Allocating Authority (cont’d) • Span of Control ØThe number of subordinates that report directly to a manager • Line Manager ØManagers in the direct chain of command who have authority over people and resources lower down. ØPrimarily responsible for the production of goods or services. • Staff Manager ØManagers who are functional-area specialists that give advice to line managers. © Copyright Mc. Graw-Hill. All rights reserved. 359–

Tall and Flat Organizations • Tall structures have many levels of authority and narrow spans of control. ØAs hierarchy levels increase, communication gets difficult creating delays in the time being taken to implement decisions. ØCommunications can also become garbled as it is repeated through the firm. • Flat structures have fewer levels and wide spans of control. ØStructure results in quick communications but can lead to overworked managers. © Copyright Mc. Graw-Hill. All rights reserved. 369–

Flat Organizations © Copyright Mc. Graw-Hill. All rights reserved. Figure 9. 10 a 379–

Tall Organizations © Copyright Mc. Graw-Hill. All rights reserved. Figure 9. 10 b 389–

Organizational Structure • Managers should carefully evaluate: ØDo the organization have the right number of middle managers? ØCan the structure be altered to reduce levels? • Centralized and Decentralized of Authority ØDecentralization puts more authority at lower levels and leads to flatter organizations. • Works best in dynamic, highly competitive environment. • Stable environment favor centralization of authority. © Copyright Mc. Graw-Hill. All rights reserved. 399–