Chapter 7 Designing Organizational Structures

1. Chapter 7 – Designing Organizational Structures

2. Chapter 7 Learning Goals What are the five structural building blocks that managers use to design organizations? What are the five types of departmentalization? How can the degree of centralization/- decentralization be altered to make an organization more successful? How do mechanistic and organic organizations differ?

3. Chapter 7 Learning Goals (cont’d.) What is the difference between line positions and staff positions? What is the goal of reengineering? How does the informal organization affect the performance of a company? What trends are influencing the way businesses organize?

4. The organizing function Coordinating and allocating resources to carry out a company’s plans/goals Accomplished by Division of labor Departmentalization Delegation Results in A formal organization

5. How do you design a good organizational structure? By using 5 building blocks Division of labor Departmentalization Managerial hierarchy Span of control Centralization of decision making

6. Division of Labor Establishing work activities Dividing work into separate jobs Assigning duties to workers Specialization

7. Departmentalization How jobs are grouped together so similar tasks are coordinated Types of departmentalization Functional Product Process Customer Geographic Many companies use a mix of these

8. Managerial Hierarchy The levels of management within the company Each unit is managed and controlled by a manager in a higher unit Chain of command Unity of command principle Power sharing concept Authority & Delegation of authority

9. Managerial Pyramid

10. Span of Control The number of employees each supervisor has under direct supervision How do you determine the best span of control? Nature of the task Location of workers Ability of manager to delegate Amount of interaction & feedback Level of skill & motivation Exhibit 7-3, pg. 203

11. Centralization of Decision Making At what level should decisions by made? Centralization Most decisions made at the top Decentralization Decision making is pushed down the organization

12. Centralization of Decision Making, cont. Factors to consider when determining degree of centralization Size of the company Speed of change in its environment Managers’ willingness to give up authority Employees’ willingness to accept authority Geographic dispersion Reevaluate organizational structure often!

13. Types of Organizational Structures Mechanistic Tall organizations Organic Flat organizations Determining which type of structure is best is based on the firm’s overall strategy, size, technology, and stability of external environment

14. Mechanistic vs. Organic Structures

15. Chuck Knight, CEO of Emerson Electric, describes his organizational philosophy: “We organize around issues and opportunities -- not around an organization chart.” “We don’t care about structure or form -- we care about getting things done.” “We plan and control profits at the lowest possible level.”

16. Common forms of organizational structures Line organizations Line and staff organizations Line positions – directly involved in processes to create goods/services Staff positions – provide administrative & support services Committee structure Matrix structure

17. Reengineering Businesses to re-evaluate the way they do business and their organizational structure from time to time Reengineering Abandon outdated rules, assumptions, policies, etc. Redesign processes and structures Allows companies to be more efficient, improve operations, & increase customer satisfaction

18. The Informal Organization Based on informal relationships between employees Provides a network of connections and communication channels which Keep employees informed & aware Foster friendships Provide recognition Socializes new employees Can interfere with company goals if group norms conflict with company standards Managers should use as a tool by bringing informal leaders into the decision making process

19. Social network analysis: the mapping of social relationships among individuals in an organization Consultants for Ernst & Young saved an automobile industry supplier an estimated $14 million by applying social network analysis to improve communication

20. Trends in business organization Virtual Corporations Key attributes Technology Opportunism Excellence Trust No borders Mix & match capabilities of different companies

21. Virtual Company Example General Life, a virtual life insurance company, reduces fixed costs (80% of traditional company costs) by subcontracting: application processing, underwriting, commission accounting, policyholder service, agent appointments, technology development, illustration design & support, policy filing and licensing, and assert management

22. Trends in business organization, cont. Global Mergers Have to determine how to structure the large, merged organization into a successful unit Can be challenging to overcome differences

23. Review Structural Building Blocks Organizational Structures Reengineering The informal organization Trends Looking Ahead Operations Management