CHAPTER 7 Organizing the Business Enterprise Business Sixth

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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

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 Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Bases of Departmentalization < Functional < Customer < Product < Geographic < Process Copyright © 2008 Pearson Education Canada

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

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

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 Vice President Division Computer Vice President Equipment Division Telecommunications Managers Staff Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

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

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

13 The Combination of Various Organizational Structures President Vice President Marketing Vice President Production Alberta Plant Manager Consumer Products Industrial Products Vice President Finance Quebec Plant Manager Consumer Products Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Industrial Products Nova Scotia Plant Manager Consumer Products Industrial Products Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

15 Task Assignment Responsibility <the duty to complete a task t 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 t 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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

18 Tall and Flat Organizations Tall organizational structure <many layers of management ttoo many = rigidity and bureaucracy Flat organizational structure <few layers of management ttoo few = chaos and inefficiency Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

20 Types of Authority Line authority Staff authority Committee/ team authority Business, Sixth Canadian

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

23 Committee & Team 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 Starke Copyright © 2008 Pearson Education Canada

24 Basic Organizational Structures Functional Divisional Project International Business, Sixth Canadian Edition, by Griffin,

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 & Vice President Marketing Vice President Resources Human Managers Staff Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

32 Matrix Organization Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright ©

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

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 Starke Copyright © 2008 Pearson Education Canada

35 Team Organization Depends on project-type teams Little formal structure Employees float from project to project depending on skills and demand t 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 Starke Copyright © 2008 Pearson Education Canada

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 Starke Copyright © 2008 Pearson Education Canada

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

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 Starke Copyright © 2008 Pearson Education Canada

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 t. Informal groups t. Organizational grapevine Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

40 Grapevine An informal communication network that carries gossip & other information tcommunication is more rapid than formal channels tcan 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 Starke Copyright © 2008 Pearson Education Canada

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 Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada