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REORGANIZATION is for EVERYONE

Explore the importance of reorganization in declining industries such as automakers, homebuilders, and banks. Learn about structuring an organization, adapting to new realities, and the principles of organizational management. Discover the benefits and challenges of departmentalization and different ways to structure an organization.

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REORGANIZATION is for EVERYONE

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  1. LO 8-1 REORGANIZATION is for EVERYONE 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. 8-1

  2. LO 8-1 STRUCTURING an ORGANIZATION Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures Adjust to new realities 8-2

  3. LO 8-2 THE CHANGING ORGANIZATION 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. 8-3

  4. LO 8-2 • Mass production of goods led to complexities in organizing businesses. PRODUCTION CHANGED ORGANZIATION DESIGN 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. 8-4

  5. Two Major Organizational Theorists HENRI FAYOL MAX WEBER

  6. HENRI FAYOL

  7. LO 8-2 • Degree of centralization • Clear communication channels • Order • Equity • Esprit de corps FAYOL’S PRINCIPLES Unity of command Hierarchy of authority Division of labor Subordination of individual interests to the general interest Authority 8-7

  8. LO 8-2 ORGANIZATIONS BASED on FAYOL’S PRINCIPLES 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. 8-8

  9. MAX WEBER

  10. LO 8-2 WEBER’S PRINCIPLES 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 8-10

  11. Management Pyramid CEO CFO COO Top Sales Mgrs Plant Mgrs. Mid-Level Supervisors Foremen Front Line/Supervisory

  12. LO 8-2 HIERARCHIES and COMMAND 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. 8-12

  13. LO 8-2 ORGANIZATIONAL CHARTS Organization Chart -- A visual device that shows relationships among people and divides the organization’s work; it shows who reports to whom. 7-13

  14. LO 8-2 TYPICAL ORGANIZATION CHART 8-14

  15. BUREAUCRATIC ORGANIZATIONS 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. 8-15

  16. 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? 8-16

  17. LO 8-3 • Centralized Authority -- When decision-making is concentrated at the top level of management. CENTRALIZATION or DECENTRALIZATION? Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters is. 8-17

  18. LO 8-3 SPAN of CONTROL 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. 8-19

  19. LO 8-3 ORGANIZATIONAL STRUCTURES 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. 8-20

  20. LO 8-3 FLAT ORGANIZATIONAL STRUCTURE 8-21

  21. LO 8-3 DEPARTMENTALIZATION Departmentalization -- Divides organizations into separate units. Workers are grouped by skills and expertise to specialize their skills. 8-23

  22. ADVANTAGES of DEPARTMENTALIZATION Employees develop skills and progress within a department as they master skills. The company can achieve economies of scale. Employees can coordinate work within the function and top management can easily direct activities. 8-24

  23. LO 8-3 DISADVANTAGES of DEPARTMENTALIZATION Departments may not communicate well. Employees may identify with their department’s goals rather than the organization’s. The company’s response to external changes may be slow. People may not be trained to take different managerial responsibilities, instead they become specialists. 8-25

  24. LO 8-3 WAYS to DEPARTMENTALIZE 8-26

  25. LO 8-3 WAYS to DEPARTMENTALIZE 8-27

  26. 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? 8-28

  27. LO 8-4 FOUR WAYS to STRUCTURE an ORGANIZATION Line Organizations Line-and-Staff Organizations Matrix-Style Organizations Cross-Functional Self-Managed Teams 8-29

  28. LO 8-4 LINE ORGANIZATIONS 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. 8-30

  29. LINE-and-STAFF ORGANIZATION 8-31

  30. LO 8-4 LINE PERSONNEL Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees. Line personnel have authority to make policy decisions. 8-32

  31. LO 8-4 STAFF PERSONNEL Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees. 8-33

  32. LO 8-4 SAMPLE LINE-and-STAFF ORGANIZATION 8-34

  33. 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. MATRIX ORGANIZATIONS Emphasis is on product development, creativity, special projects, communication and teamwork. 8-35

  34. SAMPLE MATRIX ORGANIZATION

  35. LO 8-4 ADVANTAGES of the MATRIX STYLE 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

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

  37. LO 8-4 CROSS-FUNCTIONAL SELF-MANAGED TEAMS 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

  38. 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 cross-functional teams? 8-41

  39. LO 8-5 REAL-TIME BUSINESS 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. 8-42

  40. Benchmarking and Outsourcing Benchmarking Comparing an organization’s practices, processes, and products against the world’s best

  41. Benchmarking and Outsourcing If a company can’t match the benchmark, they may try to outsource.

  42. Benchmarking and Outsourcing Outsourcing Assigning various functions, such as accounting, production, security, billing, maintenance, and legal work to outside organizations

  43. LO 8-5 WHICH JOBS are most oftenOUTSOURCED? 8-46 Source: USA Today.

  44. LO 8-5 ADAPTING to MARKET CHANGES 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. 8-47

  45. LO 8-5 KEEP in TOUCHAmazon 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? 8-48

  46. LO 8-5 RESTRUCTURING 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. 8-49

  47. LO 8-5 TRADITIONAL and INVERTED ORGANIZATIONS 8-50

  48. LO 8-6 ORGANIZATIONAL CULTURE 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. 8-51

  49. Each organization is composed of two organizations – the Formal organizationand the Informal organization The Formal and Informal Organization

  50. LO 8-6 FORMAL ORGANIZATION 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. 8-53

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