During the period of mass production, the first organization theories emerged.

Mass production: Production in large quantity à economy of scale: the production cost of a
company goes down as it produces more. This is possible because they buy the materials in
large quantities.

Traditional organization concept

Summary of the principles of organization theory elaborated by Henri Fayol and Max Weber
10.    Unity of command: every worker has only one boss
11.    Hierarchy:  the chain of command with one decision-making person at the top of the
organisation
12.    Division of labour: the work has to be divided among individuals or departments
13.    Authority: You have to obey the orders that are given by someone higher in the
hierarchy
14.    Degree of centralization: part of the decisions is made by the top managers and the
other decision-making is delegated to lower-level managers
15.    Communication channels: employees of a firm reach each other easily, this stimulates
efficiency and productivity
16.    Order: employees and materials are put in the right place
17.    Equity: a manager should treat employees with fairness and respect
18.    Esprit de corps: create common values and goals within a company
19.    Subordination of individual interest to the general interest: individual goals are less
important than the goals set in a team
20.    Bureaucracy: determine rules and procedures, be consistent in applying them and keep
records
21.    Clear job description: staffing and promotion based on qualifications
Global competition, new technologies and changing customer demands in a capitalist society
require the reorganisation of a company.

Traditional versus modern organization concepts

1)    Centralized versus decentralized authority: Centralized authority keeps the decision-
making process at the level of the top-managers. Decentralized authority gives managers and
employees the authority to make decisions. The act of delegating responsibility is called
empowerment.

2)    Tall versus flat organization structure: A tall organization structure consists of many
layers of managers, a lot of paperwork and therefore slower communication. This means
more control, more costs and less empowerment than in the flat organization structure. A flat
organization structure consists of fewer layers of manager but a broader span of control (one
manager supervises more people) than in the tall organization structure. This means less
control, less costs and more empowerment. These companies are more able to adapt to
changes because their communication goes faster.

3)    Traditional versus modern management structures

TRADITIONAL STRUCTURES:

Line organization: workers correspond directly to a manager at higher level on the chain of
command who acts on the behalf of a top-manager
Line-and-Staff organization: more interaction between line personnel (authority who makes
decisions and give commands) and staff personnel (give advice to line personnel but have no
influence on the decision-making process)

MODERN STRUCTURES:

Matrix organizations: Line personnel and staff personnel cooperate. A manager “borrows”
experts from departments to organize a temporary team (responding directly to the manager)
in order to create a new product/service. The experts still remain part of the Line-and-Staff
organization, the have two bosses.

Self-Managed Teams: Experts from different departments work together on long term basis
and they are empowered to make decisions on their own.
4)    Traditional versus inverted organization

Traditional organization: chief executive manager on top of the pyramid makes decisions and
gives commands; hierarchy and chain of command
Inverted organization: chief executive manager is on the bottom of the pyramid; he supports
(with trainings) and assists (with transparency) the empowered frontline workers

5)    Formal versus informal organization

Formal organisation: structure of the company regarding authority, responsibility and
position
Informal organisation: system of relationships within an organization

Other organizational tools and techniques

Departmentalization: the division of labour in groups. There are different ways to

departmentalize:

Separation by function (production, design, accounting, finance, marketing, human resource)

Separation by product

Separation by customer group (customer, institutions, manufacturers, commercial users)

Separation by geographical location

Separation by process (peeling, cooking, cutting, serving)

On the one hand workers in labour groups specialize and develop skills in depth but on the
other hand there is a lack of communication between the departments à solution: matrix
organizations and self-managed teams

Virtual Corporation: Virtual corporation is a temporary, network organization made up of

replaceable firms that join the network and leave it if needed.

Networking
Communication technology is used to link companies with workers and other companies.
The employees of one firm are linked by an intranet. This is a database that registers
functions and assignments of everyone in the firm. The different firms are linked by an
extranet. This makes sure that the people of the different firms know what the others are
doing à transparency (electronic information that is shared and facilitates collaboration) and
communication in real time (the moment something happens) are possible

4)    Organizational/corporate culture: Widely shared values within an organization that lead
to unity within the workers and identification with the firm in order to achieve common goals

5)    Benchmarking and Core Competencies: Benchmarking means to compare one

company’s services to another company and learn from the competitor in order to improve
the own services and products. Core competencies are functions that are done by a company
because it does as well as or better than the competitors if other companies do tasks better
than the company it outscores tasks (delegates tasks)