ORGANIZING THE BUSINESS

1. ORGANIZING THE BUSINESS 6 © 2007 Prentice Hall, Inc. All rights reserved.

2. L E A R N I N G O B J E C T I V E S After reading this chapter, you should be able to: • Discuss the factors that influence a firm’s organizational structure. • Explain specialization and departmentalization as two of the building blocks of organizational structure. • Describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy. © 2007 Prentice Hall, Inc. All rights reserved.

3. L E A R N I N G O B J E C T I V E S (cont’d) After reading this chapter, you should be able to: • Explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organizational design. • Describe the informal organization and discuss intrapreneuring. © 2007 Prentice Hall, Inc. All rights reserved.

4. What’s in It for Me? • By understanding the material in this chapter, you’ll also be prepared to: • Understand your “place” in the organization that employs you • Be better equipped to create the optimal structure for your own organization as a boss or owner © 2007 Prentice Hall, Inc. All rights reserved.

5. What Is Organizational Structure? • Organizational Structure • The specification of the jobs to be done within an organization and the ways in which those jobs relate to one another • Organization Charts • Clarify structure and to show employees where they fit into a firm’s operations • Show the chain of command, or reporting relationships, within a company © 2007 Prentice Hall, Inc. All rights reserved.

6. FIGURE 6.1 The Organization Chart © 2007 Prentice Hall, Inc. All rights reserved.

7. Determinants of Organizational Structure Mission Strategy Size Internal Environment External Environment Organizational structure is usually quite fluid! © 2007 Prentice Hall, Inc. All rights reserved.

8. The Building Blocks of Organizational Structure • Specialization • Division of work: job specialization • Departmentalization • Product, process, functional, customer, or geographic • Establishment of a decision making hierarchy • Distributing authority: • Delegation: assigning tasks • Centralization: upper management retains authority • Decentralization: lower-level managers make decisions © 2007 Prentice Hall, Inc. All rights reserved.

9. FIGURE 6.2 Multiple Forms of Departmentalization Functional Departmentalization GeographicalDepartmentalization ProductDepartmentalization © 2007 Prentice Hall, Inc. All rights reserved.

10. Establishing the Decision-Making Hierarchy Centralized Organization Top managers hold most decision-making authority Decentralized Organization Lower-level managers hold significant decision-making authority © 2007 Prentice Hall, Inc. All rights reserved.

11. Tall and Flat Organizations • Flat Organizational Structure • Common in decentralized organizations • Fewer layers of management • Rapid communication • Wide spans of control • Tall Organizational Structure • Common in centralized organizations • Multiple layers of management • Slower communication • Narrower spans of control © 2007 Prentice Hall, Inc. All rights reserved.

12. The Delegation Process • Delegation • The process through which a manager allocates work to subordinates • Delegation Entails: • Assignment of responsibility—the duty to perform an assigned task • Granting of authority—the power to make decisions necessary to complete the task • Creation of accountability—the obligation of employees to successfully complete the task © 2007 Prentice Hall, Inc. All rights reserved.

13. Why Managers Won’t Delegate • The fear that subordinates don’t really know how to do the job • The desire to keep as much control as possible over how things are done • The fear that a subordinate might “show the manager up” in front of others by doing a superb job • A simple lack of ability as to how to effectively delegate to others © 2007 Prentice Hall, Inc. All rights reserved.

14. Forms of Authority • Line Authority • The type of operational authority that flows up and down the chain of command • Staff Authority • Authority based on special expertise and usually involves counseling and advising line managers • Committee and Team Authority • Authority granted to committees or work teams that play central roles in the firm’s daily operations © 2007 Prentice Hall, Inc. All rights reserved.

15. FIGURE 6.4 Line and Staff Organization © 2007 Prentice Hall, Inc. All rights reserved.

16. Forms of Organizational Structure • Functional Structure • Form of business organization in which authority is determined by the relationships between group functions and activities • Used by most small to medium-sized firms structured around basic business functions (marketing, operations, finance) • Advantages: • Specialization and smoother internal coordination • Disadvantages: • Centralization, poor cross-functional coordination, and lack of accountability © 2007 Prentice Hall, Inc. All rights reserved.

17. FIGURE 6.5 Functional Structure © 2007 Prentice Hall, Inc. All rights reserved.

18. Forms of Organizational Structure (cont’d) • Divisional Structure • Based on departmentalization by product with each division managed as a separate enterprise • Organizations using this approach are typically structured around several divisions—departments that resemble separate businesses in that they produce and market their own products • Advantages: • Increased product-focus and internal coordination • Disadvantages: • Duplication of efforts and competition between divisions © 2007 Prentice Hall, Inc. All rights reserved.

19. FIGURE 6.6 Divisional Structure © 2007 Prentice Hall, Inc. All rights reserved.

20. Forms of Organizational Structure (cont’d) • Matrix Structure • Organized along two dimensions, instead of just one, by combining, for example, functional and divisional structures • Advantages: • Highly flexible, focused on single problem, access to resources and expertise • Disadvantages: • Loss of command and control, lack of accountability, impermanent existence © 2007 Prentice Hall, Inc. All rights reserved.

21. Forms of Organizational Structure (cont’d) • International Structures • Developed in response to the need to manufacture, purchase, and sell in global markets • Department, division, or geographic • Global Structure • Acquiring resources (including capital), producing goods and services, engaging in research and development, and selling products in whatever local market is appropriate, without any consideration of national boundaries © 2007 Prentice Hall, Inc. All rights reserved.

22. FIGURE 6.8 International Division Structure © 2007 Prentice Hall, Inc. All rights reserved.

23. Organizational Design for the 21st Century • Team Organization • Relies almost exclusively on project-type teams, with little or no underlying functional hierarchy • Virtual Organization • Has little or no formal structure, few permanent employees, a very small staff, and a modest administrative facility • Learning Organization • Integrates continuous improvement and employee learning and development while transforming itself to respond to changing demands and needs © 2007 Prentice Hall, Inc. All rights reserved.

24. FIGURE 6.9 The Virtual Organization © 2007 Prentice Hall, Inc. All rights reserved.

25. Informal Organization • Informal Organization • Everyday social interactions among employees that transcend formal jobs and job interrelationships • Advantages: • May reinforce the formal organization • Disadvantages: • Can reinforce office politics that put the interests of individuals ahead of those of the firm • May communicate distorted or inaccurate information © 2007 Prentice Hall, Inc. All rights reserved.

26. Informal Organization (cont’d) • Informal Groups • Groups of people who decide to interact among themselves, sometimes about business • Organizational Grapevine • The informal communication network that runs throughout the organization • Intrapreneuring • Creating and maintaining the innovation and flexibility of a small-business environment within the confines of a large, bureaucratic structure © 2007 Prentice Hall, Inc. All rights reserved.