CHAPTER 8 Structuring Organizations for Todays Challenges Mc

CHAPTER 8 Structuring Organizations for Today’s Challenges Mc. Graw-Hill/Irwin Copyright © 2015 by the Mc. Graw-Hill Companies, Inc. All rights reserved.

LEARNING OBJECTIVES 1. Outline the basic principles of organization management. 2. Compare the organizational theories of Fayol and Weber. 3. Evaluate the choices managers make in structuring organizations. 4. Contrast the various organizational models. 5. Identify the benefits of inter-firm cooperation and coordination. 6. Explain how organizational culture can help businesses adapt to change. 8 -2

JENNA LYONS J. Crew • Joined J. Crew in 1990 as a junior designer. • Worked her way up the ladder by emphasizing her commitment to quality. • Her management style is compassionate and understanding. 8 -3

NAME that COMPANY This company maintains strict written rules and decision guidelines. Those rules enable the firm to deliver packages quickly because employees don’t have to pause to make decisions – procedures are clearly spelled out for them. Name that company! 8 -4

REORGANIZATION is for EVERYONE LO 8 -1 • Many companies are reorganizing, especially those in decline. Including: - Auto makers - Homebuilders - Banks • Adjusting to changing markets is normal in capitalist economies. • Companies must go back to basic organizational principles and firm up the foundation. 8 -5

STRUCTURING an ORGANIZATION LO 8 -1 • Create a division of labor • Set up teams or departments • Allocate resources • Assign tasks • Establish procedures • Adjust to new realities 8 -6

WOULD YOU SACRIFICE SAFETY for PROFITS? You own a lawn-mowing business and are aware of the hazards in the job. But you’ve seen other companies save money by eliminating safety equipment. You’d also like to make more money. • What do you do? • Save money with less safety precautions? • What are the consequences? 8 -7

THE CHANGING ORGANIZATION LO 8 -2 • Often change in organizations is due to evolving business environments: - More global competition - Declining economy - Faster technological change - Pressure to protect the environment • Customer expectations have also changed -Consumers today want high-quality products with fast, friendly service and all at low cost. 8 -8

HOW MUCH CHANGES in a DECADE? LO 8 -2 What? 2000 2010 Amount of cell phone use 34% 89% Number of active blogs 12, 000 141, 000 Amount of reality shows 4 320 Daily emails sent 12 billion 247 billion Number of hours spent online per week 2. 7 18 Number of daily newspapers 1, 480 1, 302 Number of daily letters mailed 207 billion 175 billion Amount of books published 282, 242 1, 052, 803 i. Tunes downloads 0 10 billion Percentage of obese Americans 26% 34% Source: Fast Company, www. fastcompany. com, accessed March 2014. 8 -9

PRODUCTION CHANGED ORGANZIATION DESIGN LO 8 -2 • Mass production of goods led to complexities in organizing businesses. • Economies of Scale -Companies can reduce their production costs by purchasing raw materials in bulk. • The average cost of goods decreases as production levels rise. 8 -10

FAYOL’S PRINCIPLES • Unity of command • Hierarchy of authority • Division of labor • Subordination of individual interests to the general interest • Authority LO 8 -2 • Degree of centralization • Clear communication channels • Order • Equity • Esprit de corps 8 -11

ORGANIZATIONS BASED on FAYOL’S PRINCIPLES LO 8 -2 • Organizations in which employees have no more than one boss; lines of authority are clear. • Rigid organizations that often don’t respond to customers quickly. 8 -12

WEBER’S PRINCIPLES LO 8 -2 • Employees just need to do what they’re told. • In addition to Fayol’s principles, Weber emphasized: - Job descriptions - Written rules, decision guidelines and detailed records - Consistent procedures, regulations and policies - Staffing and promotion based on qualifications 8 -13

HIERARCHIES and COMMAND LO 8 -2 • When following Fayol and Weber, managers control workers. • Hierarchy -- A system in which one person is at the top of an organization and there is a ranked or sequential ordering from the top down. • Chain of Command -- The line of authority that moves from the top of the hierarchy to the lowest level. 8 -14

ORGANIZATIONAL CHARTS LO 8 -2 • Organization Chart -A visual device that shows relationships among people and divides the organization’s work; it shows who reports to whom. 7 -15

TYPICAL ORGANIZATION CHART LO 8 -2 8 -16

BUREAUCRATIC ORGANIZATIONS LO 8 -2 • Bureaucracy -- An organization with many layers of managers who set rules and regulations and oversee all decisions. • It can take weeks or months to have information passed down to lower-level employees. • Bureaucracies can annoy customers. 8 -17

TEST PREP • What do the terms division of labor and job specialization mean? • What are the principles of management outlined by Fayol? • What did Weber add to the principles of Fayol? 8 -18

CENTRALIZATION or DECENTRALIZATION? LO 8 -3 • Centralized Authority -- When decision-making is concentrated at the top level of management. • Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters is. 8 -19

CENTRALIZATION and DECENTRALIZATION LO 8 -3 8 -20

SPAN of CONTROL LO 8 -3 • Span of Control -- The optimal number of subordinates a manager supervises or should supervise. • When work is standardized, broad spans of control are possible. • Appropriate span narrows at higher levels of the organization. • The trend today is to reduce middle managers and hire better low-level employees. 8 -21

ORGANIZATIONAL STRUCTURES LO 8 -3 • Structures determine the way the company responds to employee and customer needs. • Tall Organization Structures -- An organizational structure in which the organization chart would be tall because of the various levels of management. • Flat Organization Structures -- An organizational structure that has few layers of management and a broad span of control. 8 -22

FLAT ORGANIZATIONAL STRUCTURE LO 8 -3 8 -23

ADVANTAGES and DISADVANTAGES of the DIFFERENT SPANS of CONTROL LO 8 -3 8 -24

DEPARTMENTALIZATION LO 8 -3 • Departmentalization -- Divides organizations into separate units. • Workers are grouped by skills and expertise to specialize their skills. 8 -25

ADVANTAGES of DEPARTMENTALIZATION LO 8 -3 1) Employees develop skills and progress within a department as they master skills. 2) The company can achieve economies of scale. 3) Employees can coordinate work within the function and top management can easily direct activities. 8 -26

DISADVANTAGES of DEPARTMENTALIZATION LO 8 -3 1) Departments may not communicate well. 2) Employees may identify with their department’s goals rather than the organization’s. 3) The company’s response to external changes may be slow. 4) People may not be trained to take different managerial responsibilities, instead they become specialists. 5) Department members may engage in groupthink and may need outside input. 8 -27

WAYS to DEPARTMENTALIZE LO 8 -3 8 -28

WAYS to DEPARTMENTALIZE LO 8 -3 8 -29

TEST PREP • Why are organizations becoming flatter? • What are some reasons for having a narrow span of control in an organization? • What are the advantages and disadvantages of departmentalization? • What are the various ways a firm can departmentalize? 8 -30

FOUR WAYS to STRUCTURE an ORGANIZATION LO 8 -4 1. Line Organizations 2. Line-and-Staff Organizations 3. Matrix-Style Organizations 4. Cross-Functional Self. Managed Teams 8 -31

LINE ORGANIZATIONS LO 8 -4 • Line Organization -- Has direct two-way lines of responsibility, authority and communication running from the top to the bottom. Everyone reports to one supervisor. • There are no specialists, legal, accounting, human resources or information technology departments. • Line managers issue orders, enforce discipline and adjust the organization to changes. 8 -32

LINE PERSONNEL LO 8 -4 • Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees. • Line personnel have authority to make policy decisions. 8 -33

STAFF PERSONNEL LO 8 -4 • Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees. 8 -34

SAMPLE LINE-and-STAFF ORGANIZATION LO 8 -4 8 -35

MATRIX ORGANIZATIONS LO 8 -4 • Matrix Organization -- Specialists from different parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure. • Emphasis is on product development, creativity, special projects, communication and teamwork. 8 -36

SAMPLE MATRIX ORGANIZATION LO 8 -4 8 -37

ADVANTAGES of the MATRIX STYLE LO 8 -4 • Managers have flexibility in assigning people to projects. • Interorganizational cooperation and teamwork is encouraged. • Creative solutions to product development problems are produced. • Efficient use of organizational resources. 8 -38

DISADVANTAGES of the MATRIX STYLE LO 8 -4 • It’s costly and complex. • Employees may be confused about where their loyalty belongs. • Good interpersonal skills and cooperative employees are a must. • It’s a temporary solution to a possible long-term problem. • Teams are not permanent. 8 -39

CROSS-FUNCTIONAL SELF-MANAGED TEAMS LO 8 -4 • Cross-Functional Self-Managed Teams -Groups of employees from different departments who work together on a long-term basis. • A way to fix the problem of matrix-style teams is to establish long-term teams. • Empower teams to work closely with suppliers, customers and others to figure out how to create better products. 8 -40

GOING BEYOND ORGANIZATIONAL BOUNDARIES LO 8 -4 • Cross-functional teams work best when the voice of the customer is heard. • Teams that include customers, suppliers and distributors go beyond organizational boundaries. • Government coordinators may assist in sharing market information beyond national boundaries. 8 -41

BUILDING SUCCESSFUL TEAMS LO 8 -4 Important Conditions for Small Teams • Clear purpose • Clear goals • Correct skills • Mutual accountability • Shift roles when appropriate Source: CIO Magazine, www. cio. com, accessed November 2014. 8 -42

TEST PREP • What’s the difference between line and staff personnel? • What management principle does a matrix-style organization challenge? • What’s the main difference between a matrix-style organization’s structure and the use of crossfunctional teams? 8 -43

REAL-TIME BUSINESS LO 8 -5 • Networking -- Using communications technology to link organizations and allow them to work together. • Most companies are no longer self-sufficient; they’re part of a global business network. • Real Time -- The present moment or actual time in which something takes place. 8 -44

TRANSPARENCY and VIRTUAL CORPORATIONS LO 8 -5 • Transparency -- When a company is so open to other companies that electronic information is shared as if the companies were one. • Virtual Corporation -- A temporary networked organization made up of replaceable firms that join and leave as needed. 8 -45

A VIRTUAL CORPORATION LO 8 -5 8 -46

CUTTING BACK WHILE CUTTING COSTS • Hiring workers is a major expense for small business owners. • This has led to more offshore outsourcing. • The increase can be partly attributed to the presence of online job marketplaces like ODesk. 8 -47

BENCHMARKING and CORE COMPETENCIES LO 8 -5 • Benchmarking -- Compares an organization’s practices, processes and products against the world’s best. • Core Competencies -- The functions an organization can do as well as or better than any other organization in the world. • K 2 Skis researched other companies’ practices in order to create the best possible skis and snowboards. 8 -48

BENEFITS and CONCERNS of HEALTHCARE OUTSOURCING Benefits • Provides enough staff to operate the facility • Cost savings Source: Healthcare Financial Management. LO 8 -5 Concerns • Lower employee morale • Liability • Should patients be informed • Confidentiality and security 8 -49

WHICH JOBS are most often OUTSOURCED? Source: USA Today. LO 8 -50

ADAPTING to MARKET CHANGES LO 8 -5 • Change isn’t easy. Employees like to do things the way they always have. • Get rid of old, inefficient facilities and equipment. • Use the Internet to get to know your customers and sell directly to them. 8 -51

KEEP in TOUCH LO 8 -5 Amazon and its Customer Database Amazon uses information stored in databases to reach out to customers. The company emails customers letting them know about music, DVDs or books they might like based on past purchases. • Have you ever received an email like this from Amazon or another company? • What benefits would a database of personal information, like past purchases, provide Amazon? • Do you think these databases are helpful for both companies and consumers or are they an invasion of privacy? 8 -52

LO 8 -5 MAKING the CHANGE • Digital Natives -Young people who have grown up using the Internet and social networking. Photo Credit: Marc Wathieu 8 -53

WHEN OPEN COMMUNICATION SHOULD NOT BE SO OPEN • The blending of mobile technology and work has been helpful to business. • However, it also has encroached on the traditional work-life boundaries. • Over 1/3 of surveyed employees responded that receive workrelated emails after hours, many complain it affects quality of life. 8 -54

RESTRUCTURING LO 8 -5 • Restructuring -- Redesigning an organization so it can more effectively and efficiently serve its customers. • Inverted Organization -- An organization that has contact people at the top and the CEO at the bottom of the organizational chart. • The manager’s job is to assist and support frontline workers, not boss them. 8 -55

TRADITIONAL and INVERTED ORGANIZATIONS LO 8 -56

ORGANIZATIONAL CULTURE LO 8 -6 • Organizational or Corporate Culture -- The widely shared values within an organization that foster unity and cooperation to achieve common goals. • Some of the best organizational cultures emphasize service. • Culture is shown in stories, traditions and myths. 8 -57

FORMAL ORGANIZATION LO 8 -6 • Formal Organization -- Details lines of responsibility, authority and position. • The formal system is often slow and bureaucratic, but it helps guide the lines of authority. • No organization can be effective without formal and informal organization. 8 -58

INFORMAL ORGANIZATION LO 8 -6 • Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships. • Informal organization helps foster camaraderie and teamwork among employees. 8 -59

LIMITATIONS of INFORMAL ORGANIZATIONS LO 8 -6 • The informal system is too unstructured and emotional on its own. • Informal organization may also be powerful in resisting management directives. 8 -60

GROUP NORMS LO 8 -6 Examples of Informal Group Norms • Do your job but don’t produce more than the rest of your group. • Don’t tell off-color jokes or use profanity. • Everyone is to be clean and organized at the workstation. • Respect and help your fellow group members. • Drinking is done off the job – NEVER at work. Source: CIO Magazine, www. cio. com, accessed November 2014. 8 -61

TEST PREP • What is an inverted organization? • Why do organizations outsource functions? • What is organizational culture? 8 -62