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CHAPTER 7
Creating a Flexible Organization
INSTRUCTOR MANUAL RESOURCES

7.1 A Word from the Authors ......................................................................................................... 2
7.2 Transition Guide ....................................................................................................................... 2
7.3 Quick Reference Guide ............................................................................................................. 3
7.4 Learning Objectives .................................................................................................................. 4
7.5 Brief Chapter Outline ................................................................................................................ 4
7.6 Comprehensive Lecture Outline ............................................................................................... 5
7.7 Textbook Answer Keys........................................................................................................... 13
7.7a Concept Checks .................................................................................................... 13
7.7b Discussion Questions ............................................................................................ 17
7.7c Video Case: Zappos Wants to Make Customers (and Employees) Happy ........... 18
7.7d Building Skills for Career Success ....................................................................... 19
7.8 Quizzes I and II ....................................................................................................................... 22
7.9 Answer Key for Quizzes I and II ............................................................................................ 24
7.10 Classroom Exercises ............................................................................................................... 24
7.10a Homework Activities ............................................................................................ 24
7.10b Classroom Activities ............................................................................................. 24
7.10c Exercise Handouts ................................................................................................ 25
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1
2 Chapter 7 Creating a Flexible Organization
7.1 A WORD FROM THE AUTHORS

Having outlined in the preceding chapter the management of a business organization, in this chapter
we examine the organization itself. First, we define organization from a business perspective. Then
we discuss five dimensions of organizational structure: (1) job specialization, (2) departmentalization,
(3) centralization, (4) span of management, and (5) chain of command.
Next, we discuss the various methods of combining these individual elements within a single
business structure. We introduce four approaches to organizational structure—line, line-and-staff,
matrix, and network—and present the advantages and disadvantages of each. We conclude the
chapter with a brief discussion of how corporate culture, committees, informal groups, and the
grapevine affect an organization.
7.2 TRANSITION GUIDE
New in Chapter 7: Creating a Flexible Organization

 A new Inside Business feature titled “Can Structural Changes Re-Ignite McDonald’s
Growth?” describes the organizational changes McDonald’s has been implementing to
reignite their sales growth.
 A Career Success feature titled “Flexible Work Space: Are You Ready to Sit Next to the
CEO?” discussing the concept of the flexible workspace has been added.
 Examples have been updated to include companies such as Office Depot.
 Added an Ethical Success or Failure? feature titled “If We Get Ethics Right, Will
Compliance Follow?” regarding L’Oreal’s philosophy toward ethical behavior.
 An Entrepreneurial Success feature titled “Entrepreneurs Set the Tone of Corporate Culture”
has been added listing tips from entrepreneurs about how to cultivate a strong corporate
culture.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 3
7.3 QUICK REFERENCE GUIDE

Instructor Resource Location
Transition Guide IM, p. 2
Learning Objectives Textbook, p. 188; IM, p. 4
Brief Chapter Outline IM, pp. 4-5
Comprehensive Lecture Outline IM, pp. 5-12
Career Success Flexible Work Space: Are You Ready to Textbook, p. 193
Sit Next to the CEO?
Entrepreneurial Success Entrepreneurs Set the Tone of Textbook, p. 202
Corporate Culture
Ethical Success or Failure If We Get Ethics Right, Will Textbook, p. 200
Compliance Follow?
Inside Business Can Structural Changes Re-Ignite Textbook, p. 189
McDonald’s Growth?
Marginal Key Terms List Textbook, p. 207
Concept Checks Textbook, pp. 192, 193, 194, 197, 198, 203, 204, and 205
Questions and Suggested Answers, IM, pp. 13-15
Discussion Questions Textbook, p. 207
Questions and Suggested Answers, IM, pp. 17-18
Video Case (Zappos Wants to Make Customers [and Textbook, pp. 207-208
Employees] Happy) and Questions Questions and Suggested Answers, IM, pp. 18-19
Building Skills for Career Success Textbook, pp. 208-209
Suggested Answers, IM, pp. 19-21
IM Quiz I & Quiz II IM, pp. 240-242
Answers, IM, p. 22
Classroom Exercises IM, p. 24-31
7.4 LEARNING OBJECTIVES

After studying this chapter, students should be able to:
1. Understand what an organization is and identify its characteristics.
2. Explain why job specialization is important.
3. Identify the various bases for departmentalization.
4. Explain how decentralization follows from delegation.
5. Understand how the span of management describes an organization.
6. Describe the four basic forms of organizational structure.
7. Describe the effects of corporate culture.
8. Understand how committees and task forces are used.
9. Explain the functions of the informal organization and the grapevine in a business.
7.5 BRIEF CHAPTER OUTLINE

I. What Is an Organization?
A. Developing Organization Charts
B. Major Considerations for Organizing a Business
II. Job Design

A. Job Specialization
B. The Rationale for Specialization
C. Alternatives to Job Specialization
III. Departmentalization
A. By Function
B. By Product
C. By Location
D. By Customer
E. Combinations of Bases
IV. Delegation, Decentralization, and Centralization

A. Delegation of Authority
1. Steps in Delegation
2. Barriers to Delegation
B. Decentralization of Authority
V. The Span of Management

A. Wide and Narrow Spans of Management
B. Organizational Height
VI. Forms of Organizational Structure

A. The Line Structure
B. The Line-and-Staff Structure
C. The Matrix Structure
D. The Network Structure
VII. Corporate Culture
VIII. Committees and Task Forces
IX. The Informal Organization and the Grapevine
7.6 COMPREHENSIVE LECTURE OUTLINE
I. WHAT IS AN ORGANIZATION? An organization is a group of two or more people

working together to achieve a common set of goals. A neighborhood dry cleaner owned and
operated by a husband and wife team is an organization. So are IBM and Home Depot.
A. Developing Organization Charts. An organization chart is a diagram that represents
the positions and relationships within an organization. (See Figure 7-1.)
1. The chain of command is the line of authority that extends from the highest to the
lowest levels of the organization.
2. The positions represented by broken lines are not part of the direct chain of
command; these are advisory, or staff, positions.
3. Many smaller organizations find organization charts useful. Some large
organizations do not maintain complete, detailed charts because:
a) It is difficult to accurately chart a few dozen positions, much less the
thousands that characterize larger firms.
b) Larger organizations are almost always changing which quickly makes the
organization chart outdated.
Teaching Tip: Enter “organization chart” in your favorite search engine and bring up some
examples of organization charts. Some good ones include the one for the Justice Department
(http://www
.justice.gov/agencies/index-org.html) and the one for the United Nations
(http://www.un.org/en/aboutun/structure/pdfs/UN_System_Chart_30June2015.pdf). Comparing
these and the charts you found, what do you think constitutes a good organization chart?
B. Major Considerations for Organizing a Business. The factors to consider when

deciding how to organize a firm include job design, departmentalization, delegation,
span of management, and chain of command.
II. JOB DESIGN

A. Job Specialization. Job specialization is the separation of all organizational activities
into distinct tasks and the assignment of different tasks to different people.
B. The Rationale for Specialization. Specialization is necessary for several reasons.
1. The “job” of most organizations is simply too large for one person to handle.
2. When a worker has to learn one specific, highly specialized task, that individual
can learn it quickly and perform it efficiently.
3. The worker who is doing the same job over and over does not lose time changing
operations.
4. The more specialized the job, the easier it may be to design specialized equipment.
5. The more specialized the job, the easier is the job training.
Teaching Tip: As an example of job specialization, ask your students about the specialization in
their family as they were growing up. Chances are that each member of the family had some tasks
for which they were the family “expert.” For example, were they the computer guru in their house?
C. Alternatives to Job Specialization. Specialization can also have some negative

consequences, such as employee boredom and dissatisfaction. Managers can minimize
these issues.
1. Job rotation is the systematic shifting of employees from one job to another.
2. Job enlargement and job enrichment, along with other methods used to motivate
employees, are discussed in Chapter 10.
III. DEPARTMENTALIZATION. Departmentalization is the process of grouping jobs into

manageable units. Common bases of departmentalization are:
A. By Function. Departmentalization by function groups jobs that relate to the same
organizational activity.
1. Many smaller and newer organizations departmentalize on function.
2. The disadvantages of this method are that it can lead to slow decision making and
it tends to emphasize the department rather than the organization.
B. By Product. Departmentalization by product groups all activities related to a particular
good or service.
1. This approach is often used by older and larger firms that produce and sell a
variety of products.
C. By Location. Departmentalization by location groups all activities according to the
defined geographic area in which they are performed.
D. By Customer. Departmentalization by customer groups all activities according to the
needs of various customer populations.
E. Combinations of Bases. Many organizations use a combination of departmentalization

bases. (See Figure 7-2.)
Teaching Tip: Ask your students if any of them have ever worked for a restaurant or hotel. Ask them
what type of departmentalization they might have encountered. A hotel might have a specific group of
employees who only handle banquets and corporate meetings, which would be an example of customer-
based departmentalization. At a restaurant, things might be arranged by function. As part of the
discussion, ask students what improvements they might make.
IV. DELEGATION, DECENTRALIZATION, AND CENTRALIZATION. Delegation

assigns work and power to other workers.
A. Delegation of Authority
1. Steps in Delegation. Three steps are generally involved in the delegation process.
(See Figure 7-3.)
a) The manager must assign responsibility. Responsibility is the duty to do a job
or perform a task.
b) A manager must grant authority, which is the power, within the organization,
to accomplish an assigned job or task.
Teaching Tip: Ask students if anyone has ever given them the responsibility for accomplishing a
task without giving them the authority to get it done.
c) The manager must create accountability. Accountability is the obligation of a

worker to accomplish an assigned job or task. Accountability is created, but it
cannot be delegated.
2. Barriers to Delegation. For several reasons, managers may be unwilling to
delegate work.
a) A manager may not trust the employee to complete the task.
b) A manager may fear that a subordinate will do exceptional work and attract
the attention of top management.
c) Some managers are so disorganized that they simply are not able to plan and
assign work effectively.
Teaching Tip: Consider using “The Delegator” exercise here. It is a five-minute individual quiz that
can be used as the basis for discussion regarding when it is and when it isn’t appropriate to delegate.
B. Decentralization of Authority. The pattern of delegation throughout an organization

determines the extent to which that organization is decentralized or centralized.
1. An organization in which management consciously attempts to spread authority

widely across organization levels is said to be a decentralized organization.
2. An organization that systematically works to concentrate authority at the upper
levels is a centralized organization.
3. A variety of factors can influence the extent to which a firm is decentralized.
a) The external environment in which the firm operates. The more complex or
unpredictable the environment, the more likely it is that top management will
let lower-level managers make important decisions because lower-level
managers are closer to the problems.
b) The nature of the decision to be made. The riskier or more important the
decisions that have to be made, the greater is the tendency to centralize
decision making.
c) The decision-making abilities of lower-level managers.
d) A firm that has practiced centralization or decentralization is likely to
maintain that same practice in the future.
4. In principle, neither decentralization nor centralization is right. What works for one
organization may or may not work for another.
V. THE SPAN OF MANAGEMENT. The fourth major step of organizing a business is

establishing span of management (or span of control), which is the number of workers who
report directly to one manager.
A. Wide and Narrow Spans of Management. A wide span of management exists when a
manager has a large number of subordinates. A narrow span exists when the manager
has only a few subordinates. Several factors determine the span that is best for a
particular manager.
B. Organizational Height. Organizational height is the number of layers, or levels, of
management in a firm.
1. The span of management plays a direct role in determining an organization’s
height. (See Figure 7-4.)
a) If the span of management is wide, fewer levels are needed, and the
organization is flat.
b) If the span of management is narrow, more levels are needed, and the
resulting organization is tall.
2. In a tall organization, administrative costs are higher because more managers are
needed. Communication may become distorted.
3. Managers in a flat organization may have to perform more administrative duties
because there are fewer managers.
VI. FORMS OF ORGANIZATIONAL STRUCTURE. The four basic forms of organizational

structure are line, line-and-staff, matrix, and network.
A. The Line Structure. A line structure is when the chain of command goes directly from
person to person throughout the organization.
1. Managers within a line structure, called line managers, make decisions and give
orders to subordinates to achieve the goals of the organization.
2. A line structure allows line managers to make decisions quickly with direct
accountability because the decision maker only reports to one supervisor.
3. The downside of a line structure is that line managers are responsible for many
activities and therefore must have a wide range of knowledge about all of them.
Consequently, line structures are more popular in small organizations rather than in
medium- and large-sized organizations where activities are more numerous and
complex.
B. The Line-and-Staff Structure. A line-and-staff structure utilizes the chain of
command from a line structure, but also provides line managers with specialists, called
staff managers.
1. Staff managers provide support, advice, and expertise to line managers. They are
not part of the chain of command but they do have authority over their assistants.
2. Both line and staff managers are needed for effective management, but the two
positions differ in important ways. (See Figure 7-5.)
a) Line managers have line authority, which means that they can make decisions
and issue directives relating to the organization’s goals.
b) Staff managers have advisory authority, which means they can provide advice
to line managers. Staff managers also have functional authority, allowing
them to make decisions and issue directives about their areas of expertise.
3. Conflict between line managers and staff managers can occur if line managers
perceive that staff managers are a threat to their authority or if staff managers
perceive that their recommendations are not being adopted by line managers. There
are several ways to minimize this conflict.
a) Integrate line and staff managers into one team.
b) Ensure that the areas of responsibility of line and staff managers are clearly
defined.
c) Hold line and staff managers accountable for the results of their activities.
C. The Matrix Structure. The matrix structure combines vertical and horizontal lines of
authority.
1. The matrix structure occurs when product departmentalization is superimposed on
a functionally departmentalized organization. (See Figure 7-6.)
2. Authority flows both down and across and employees report to more than one
supervisor.
3. In a matrix structure, people from different departments are assigned to a group,
called a cross-functional team, to work on a new project.
a) Frequently, cross-functional teams are charged with developing new products.
b) The project manager is in charge of the team, but employees on the team also
report to their functional department supervisor.
c) Cross-functional teams may be temporary or permanent.
d) These teams are often empowered to make major decisions.
4. The matrix organization has several advantages.
a) One advantage is added flexibility.
b) This structure can increase productivity, raise morale, and nurture creativity
and innovation.
c) Employees experience personal development by doing a variety of jobs.
5. The matrix organization also has several disadvantages.
a) Having employees report to more than one supervisor can cause confusion
about who is in charge.
b) Like committees, teams may take longer to resolve problems and issues than
individuals working alone.
c) Other difficulties may include personality clashes, poor communication,
undefined individual roles, unclear responsibilities, and difficulties in finding
ways to reward individual and team performance simultaneously.
d) Because more managers and support staff may be needed, a matrix structure
may be more expensive to maintain.
D. The Network Structure. In a network structure (or virtual organization), administration
is the primary function performed. Other functions are contracted out to other
organizations.
1. This type of organization has only a few permanent employees consisting of top
management and a few hourly clerical workers.
2. Leased equipment and facilities are temporary.
3. There is limited formal structure.
4. Flexibility allows an organization to quickly adjust to changes.
5. Managers may face some of the following challenges:
a) Controlling the quality of work performed by other organizations.
b) Low morale and high turnover among hourly workers.
c) A lack of clear hierarchy.
Teaching Tip: Consider using the 30- to 60-minute “Virtual Network Structure” exercise here. This
exercise will allow students to explore the complexities of building a network.
VII. CORPORATE CULTURE. A corporate culture is generally defined as the inner rites,
rituals, heroes, and values of a firm.
A. Corporate culture is generally thought to have a very strong influence on a firm’s
performance over time.
B. Goffee and Jones identified four types of corporate cultures. (See Figure 7-7.)
1. Networked culture
2. Mercenary culture
3. Fragmented culture
4. Communal culture
Teaching Tip: Use the “What’s My Culture?” group exercise here. It takes approximately 15 to 20
minutes.
C. Some experts believe that cultural change is needed when the company’s environment
changes, such as when the industry becomes more competitive, the company’s
performance is mediocre, or the company is growing rapidly.
VIII. COMMITTEES AND TASK FORCES

A. Several types of committees can be used within an organizational structure.
1. An ad hoc committee is created for a specific short-term purpose, such as
reviewing the firm’s employee benefits plan.
2. A standing committee is a relatively permanent committee charged with
performing a recurring task.
3. A task force is a committee established to investigate a major problem or pending
decision.
B. Committees offer some advantages over individual action.
1. Several members are able to bring more information and knowledge to the task at
hand.
2. Committees tend to make more accurate decisions and to transmit their results
through the organization more effectively.
C. Disadvantages to using committees include the following:
1. Committee deliberations take much longer than individual action.
2. Unnecessary compromise may take place within the committee.
IX. THE INFORMAL ORGANIZATION AND THE GRAPEVINE. Informal organization

describes the pattern of behavior and interaction that stems from personal rather than official
relationships.
A. An informal group is created by the group members themselves to accomplish goals that
may or may not be relevant to the organization.
1. Workers may create an informal group to go bowling, form a union, get a particular
manager fired or transferred, or share lunch.
2. Informal groups can be powerful forces in organizations. Managers should be
aware of informal groups.
B. The grapevine is the informal communications network within an organization.

1. The grapevine is completely separate from—and sometimes much faster than—the
organization’s formal channels of communication.
2. Managers would make a mistake if they tried to eliminate the grapevine. A more
rational approach is to recognize the existence of the grapevine as a part (though an
unofficial part) of the organization.
7.7 TEXTBOOK ANSWER KEYS
7.7a Concept Checks

Concept Check (p. 192)
1. How do large and small organizations use organization charts differently?
Most smaller organizations find organization charts useful. They clarify positions and report
relationships for everyone in the organization, and they help managers track growth and change
in the organizational structure. However, many large organizations, such as ExxonMobil,
Kellogg’s, and Procter & Gamble, do not maintain complete, detailed charts for two reasons.
First, it is difficult to chart even a few dozen positions accurately, much less the thousands that
characterize larger firms. Second, larger organizations are almost always changing parts of their
structure. An organization chart would be outdated before it was completed.
2. Identify the major considerations when organizing a business.
The most important considerations are as follows:
a. Job design. Divide the work that is to be done by the entire organization into separate parts,
and assign those parts to positions within the organization.
b. Departmentalization. Group the various positions into manageable units or departments.
c. Delegation. Distribute responsibility and authority within the organization.
d. Span of management. Determine the number of subordinates who will report to each manager.
e. Chain of command. Establish the organization’s chain of command by designating the
positions with direct authority and those that are support positions.
1. What are the positive and negative effects of specialization?
For a number of reasons, some job specialization is necessary in every organization because the
“job” of most organizations is too large for one person to handle. When a worker has to learn
one specific, highly specialized task, that individual should be able to learn it very efficiently. A
worker repeating the same job does not lose time changing from operations, as the pin workers
did when producing complete pins. The more specialized the job, the easier it is to design
specialized equipment. And finally, the more specialized the job, the easier is the job training.
The most significant drawback is the boredom and dissatisfaction employees may feel when
repeating the same job. Bored employees may be absent from work frequently, may not put much
effort into their work, and may even sabotage the company’s efforts to produce quality products.
2. What are three ways to reduce the negative effects of specialization?
Job rotation, job enlargement, and job enrichment can reduce the negative effects of specialization.

1. What are the four most common bases for departmentalization?
The four most common bases of departmentalization are by function, by product, by location,
and by type of customers. Departmentalization by function groups jobs that relate to the same
organizational activity. Departmentalization by product groups activities related to a particular
good or service. Departmentalization by location groups activities according to the defined
geographic area in which they are performed. Departmentalization by customer groups
activities according to the needs of various customer populations.
2. Give an example of each.
Departmentalization by function groups jobs that relate to the same organizational activity, such
as marketing and accounting. Departmentalization by product groups activities related to a
particular good or service. A company that sells consumer products might choose to separate
based on product such as oral care products, personal care products, and home care products.
Departmentalization by location groups activities according to the defined geographic area in
which they are performed. Ford has divisions in the Americas, Europe, Asia Pacific, and Africa.
Departmentalization by customer groups activities according to the needs of various customer
populations. For instance, an organization that sells computers might have one department
focused on end consumers and another department focused specifically on business customers
as their needs and order sizes will likely vary.
1. Identify and describe the three steps in the delegation process.
The three steps involved in delegation are (1) assigning responsibility, which is the duty to
perform the job or task; (2) granting authority, which is the power within the organization to
accomplish the task or job; and (3) creating accountability, which is the obligation of a
subordinate to accomplish an assigned task or job.
2. Differentiate decentralized organization and centralized organization.
The pattern of delegation throughout an organization determines the extent to which that
organization is decentralized or centralized. In a decentralized organization, management
consciously attempts to spread authority widely across various organization levels. A
centralized organization, on the other hand, systematically works to concentrate authority at the
upper levels.
1. Describe the two spans of management.
A wide span of management exists when a manager has a larger number of subordinates. A
narrow span exists when the manager has only a few subordinates.
2. What are problems associated with each one?
In a taller organization, administrative costs are higher because more managers are needed.
Communication among levels may become distorted because information has to pass up and
down through more people. Although flat organizations avoid these problems, their managers
may perform more administrative duties simply because there are fewer managers. Wide spans
of management also may require managers to spend considerably more time supervising and
working with subordinates.
1. Describe the four forms of organizational structure.
The four forms of organizational structure are as follows:
 A line structure is a management system in which the chain of command goes directly
from person to person throughout the organization.
 A line and staff structure not only utilizes the chain of command from a line structure
but also provides line managers with specialists, called staff managers.
 The matrix structure combines vertical and horizontal lines of authority.
 In a network structure (sometimes called a virtual organization), administration is the
primary function performed, and other functions such as engineering, production,
marketing, and finance are contracted out to other organizations.
2. Give an example of each form.
An example of a line structure would be a smaller organization such as a tea shop where the
chain of command goes from the owner or CEO to the different levels of employees.
An example of a line-and-staff structure might be a large sales organization with sales managers
that oversee regional sales managers. The sales manager would have the authority to make sales
decisions to advance company goals, while the regional sales managers oversee sales staff and
specialize in their specific regions.
An example of companies that use the matrix structure might be Ford Motor Company when it
assembled a special project team to design and manufacture its global cars. Often, engineering
and construction firms, like Bechtel Corporation, use a matrix structure for their projects.
A network organization does not manufacture the products it sells. This type of organization
has a few permanent employees consisting of top management and hourly clerical workers.
Leased facilities and equipment, as well as temporary workers, are increased or decreased as the
needs of the organization change. Thus, there is rather limited formal structure associated with a
network organization. Often, start-ups are formed as a network structure.
1. What is corporate culture?
Corporate culture is generally defined as the inner rites, rituals, heroes, and values of a firm. It
can have a powerful influence on how its employees think and act, as well as determine how the
public perceives the organization.
2. Explain the four types of corporate cultures.
There are four distinct types of corporate culture:
a. Networked culture is a relaxed and informal environment. There is a strong commitment
and a feeling of loyalty to the organization, characterized by a base of trust and friendship
among employees.
b. In the mercenary culture, employees are very intense, focused, and determined to win. In
addition to employees working to earn money, feelings of passion, energy, sense of purpose,
and excitement for one’s work play a large role in motivating an organization’s employees.
c. Fragmented culture suggests that employees do not necessarily become friends but have a
high degree of autonomy, flexibility, and equality. Employees in this type of culture
consider themselves as working “at” the organization, not “for” it.
d. In the communal culture, the positive traits of the networked culture and the mercenary
culture are combined. Traits such as friendship, commitment, high focus on performance,
and high energy contribute to the organization resulting in an environment where success by
anyone is celebrated by all.
1. What is the difference between a committee and a task force?
An ad hoc committee is created for a specific short-term purpose, such as reviewing the firm’s
employee benefits plan. Once its work is finished, the ad hoc committee disbands. A standing
committee is a relatively permanent committee charged with performing a recurring task. A
firm might establish a budget review committee, for example, to review departmental budget
requests on an ongoing basis. Finally, a task force is a committee established to investigate a
major problem or pending decision.
2. What are the advantages and disadvantages of using committees?
Committees offer some advantages over individual action. Their several members are able to
bring information and knowledge to the task at hand. Furthermore, committees tend to make
more accurate decisions and to transmit their results through the organization more effectively.
However, committee deliberations take longer than individual actions. In addition, unnecessary
compromise may take place within the committee, or the opposite may occur, as one person
dominates (and thus negates) the committee process.
1. In what ways can informal groups affect a business?
Informal groups can be powerful forces in organizations. They can restrict output, or they can
help managers through tight spots. They can cause disagreement and conflict, or they can help
to boost morale and job satisfaction. They can show new people how to contribute to the
organization, or they can help people to get away with substandard performance.
2. How is the grapevine used in a business organization?
The grapevine is the informal communications network within an organization. Information can
be transmitted through the grapevine in any direction—up, down, diagonally, or horizontally
across the organizational structure. Subordinates may pass information to their bosses, an
executive may relay something to a maintenance worker, or there may be an exchange of
information between people who work in totally unrelated departments. Managers should
respond promptly and aggressively to inaccurate grapevine information to minimize the damage
that such misinformation might do. Moreover, the grapevine can come in handy when managers
are on the receiving end of important communications from the informal organization.
7.7b Discussion Questions

1. In what way do organization charts create a picture of an organization?
Organization charts are diagrams that represent positions in the organization and the
relationships among them. They also illustrate the five considerations in the organizing process:
specialization, departmentalization, centralization, span of management, and chain of
command.
2. What determines the degree of specialization within an organization?
The degree of specialization within an organization is determined through division of the entire
organization’s work into separate parts and assignment of those parts to positions within the
organization.
3. Describe how job rotation can be used to combat the problems caused by job specialization.
In job rotation, each employee is shifted periodically to a different job. The idea behind job
rotation is to provide a variety of tasks so that workers are less likely to get bored and
dissatisfied.
4. Why do most firms employ a combination of departmentalization bases?
A departmentalization base is the scheme by which jobs are grouped into units. In fact, few
organizations exhibit only one departmentalization base. The most common bases are function,
product, location, and customer. The decision to use multiple bases is usually based on the
specific needs of the corporation and on the determination of which combination of bases will
enable the organization to accomplish its goals and objectives.
5. What three steps are involved in delegation? Explain each.
The three steps involved in delegation are (1) assigning responsibility, which is the duty to
perform the job or task; (2) granting authority, which is the power within the organization to
accomplish the task or job; and (3) creating accountability, which is the obligation of a
subordinate to accomplish an assigned task or job.
6. How does a firm’s top management influence its degree of centralization?
If top management consciously attempts to spread authority widely to the lower levels of
management, the firm is decentralized. If top management works to keep authority at the upper
levels, the firm is centralized.
7. How is organization height related to the span of management?
If the span of management is generally narrow, more levels of management are needed,
resulting in a tall organization. If the span of management is wider, fewer levels are needed and
the organization is flat.
8. Contrast line-and-staff and matrix forms of organizational structure.
The line-and-staff structure is characterized by a chain of command line structure coupled with
specialists (staff managers) who support the line managers; departmentalization by function;
formal patterns of delegation; a high degree of centralization; and clearly defined line and staff
positions, with formal relationships between the two.
The matrix structure features vertical and horizontal lines of authority, departmentalization
superimposed on a functionally departmentalized organization, workers who report to more
than one supervisor at a time, and cross-functional teams that include project managers.
9. How does the corporate culture of a local Best Buy store compare to that of a local
McDonald’s?
Best Buy appears to be a mercenary culture in that its workers appear to be goal oriented and
competitive as they sell high-priced electronics products and accessories. McDonald’s is more
of a communal culture in that its workers are much more regimented as they work in teams for
the common goal of superior customer service.
10. Which kinds of firms probably would operate most effectively as centralized firms? As
decentralized firms?
Production firms would probably operate most effectively as centralized firms because the
degree of specialized technical knowledge required is usually limited. Research firms, by
contrast, need to be decentralized because of the great degree and variety of specialized
knowledge required to do the job in such firms.
11. How do decisions concerning span of management and the use of committees affect
organizational structure?
Decisions concerning span of management and the use of committees affect basic
organizational structure by altering chains of command, delegation chains, individual
authorities, accountabilities, and so on.
7.7c Comments on Video Case
Zappos Wants to Make Customers (and Employees) Happy

Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide.
1. Do you think Zappos is a decentralized or centralized organization? Do you think it
should change? Explain your answer.
Zappos is decentralized because so many decisions are delegated to lower organizational levels.
Employees are encouraged to make decisions on their own, rather than being forced to consult
with higher-level managers and wait for decisions to be made centrally. Students will also
recognize that employees are empowered to engage customers in conversation and create a
“wow” experience instead of strictly following a preset sales script, as would be more typical in
a centralized organization. However, Zappos does centralize its training and carefully monitors
performance to keep employees informed on how the business is doing.
If Zappos changes to become a centralized organization, it is likely to lose the flexibility it
needs to make changes quickly as the business environment changes and becomes even more
complex and unpredictable than it is today. Another point is that employees currently make
decisions that have relatively minor consequences, such as whether to upgrade a customer to
overnight delivery of an order. Such decisions do not really have to be centralized, and if they
were, transactions would move much more slowly—which, in turn, would probably damage
customer satisfaction.
2. Of the four types of corporate culture, which most closely describes the culture of
Zappos? What are the implications for the organization and for managers and
employees?
Zappos does not exhibit a mercenary culture, because its employees are not obsessed with
completing tasks and avoiding relationships. Nor does Zappos exhibit a fragmented culture,
because its employees are focused on building relationships rather than maintaining their
independence and being introverted. Although Zappos exhibits some elements of the networked
culture—extroverted and tolerant of ambiguities—it can be best described as a communal
culture. In this type of culture, employees are passionate about their work, identify strongly
with the company and its values, and enjoy working in teams, as at Zappos. The implications
for management: Be sure employees understand and embrace the common values; make
working together fun; and reinforce the focus on creating a “wow” experience for customers.
3. What effect are quarterly meetings and daily postings of performance statistics likely to
have on the grapevine inside Zappos?
By sharing information freely and frequently, and by encouraging questions and comments
from employees during meetings, Zappos is minimizing the possibility that misinformation will
spread via the grapevine. In fact, details that travel via the grapevine are likely to be more
accurate and timely when employees receive a lot of information directly from the company
and have the opportunity to discuss issues with management on a regular basis.
7.7d Building Skills for Career Success

1. Social Media Exercise
Zappos has a reputation for being customer-centered, meaning it embraces the notion
that customers come first. One of the ways that is allows employees to communicate with
customers is through its blogs at http://blogs.zappos.com/.
1. Take a look at this blog. What can you tell about the corporate culture of Zappos?
Zappos defines its corporate culture according to its ten core values. Corporate culture is
essential to the success of the Zappos brand. The following information was taken directly
from a blog post from CEO of Zappos Tony Hsieh: “At Zappos, our belief is that if you get
the culture right, most of the other stuff — like great customer service, or building a great
long-term brand, or passionate employees and customers — will happen naturally on its
own. We believe that your company’s culture and your company’s brand are really just two
sides of the same coin. The brand may lag the culture at first, but eventually it will catch
up. Your culture is your brand.”1
.
2. How do they approach customer service? Do you think it works? Why or why not?
1
Tony Hsieh, “Your Culture Is Your Brand,” Zappos Blogs, January 3, 2009, http://blogs.zappos.com/blogs/ceo-and-
coo-blog/2009/01/03/your-culture-is-your-brand, accessed November 12, 2015.
The following information was taken directly from the blog Zappos Insights: “Having a
strong company culture is great, but the best culture in the world doesn’t matter if you do
not take care of your customers.”2 From the website: “We are not an average company, our
service is not average, and we don’t want our people to be average. We expect every
employee to deliver WOW.”3 These messages are communicated throughout the
organization, and the messages are part of the culture. When a company embraces a
philosophy as part of its core, and the philosophy is not just a message but internal to every
part of the organization, it works!
2. Building Team Skills
The organization chart on the following page is a line-and-staff structure. There are three staff
positions: one payroll and billing position and two appointment coordinators. The other
positions are line positions. In this organization, the span of control ranges from zero to seven
people. The executive vice-president works with builders to establish their programs and
provides the center managers with training, guidelines, and expectations. It is the responsibility
of the managers to run their centers in a courteous and profitable manner.
3. Researching Different Careers
The answers will vary. Emphasize that honesty is important in completing the assessment.
Nothing changes unless a plan is prepared to improve weaknesses. Possessing excellent skills,
knowing how to network, understanding one’s accomplishments, and having a positive attitude
are key factors in being promoted within a company, as well as in being hired to fill a better
position with another company.
2
“Company Culture + Exceptional Service = Magic,” Zappos Insights, November 22, 2011,
http://www.zapposinsights.com/blog/item/company-culture-exceptional-service-magic, accessed November 12, 2015.
3
“Life at Zappos,” Zappos, https://jobs.zappos.com/life-at-zappos, accessed November 12, 2015.
7.8 QUIZZES I AND II

Quiz I
True-False Questions
Select the correct answer.
1. T F The step that distributes responsibility and authority within an organization is called
delegation.
2. T F Job specialization is the systematic shifting of employees from one job to another.
3. T F The obligation of a worker to accomplish an assigned job or task is called accountability.
4. T F Span of management and span of control are synonymous terms.
5. T F There are fewer conflicts when the areas of responsibility for line managers and staff
managers are clearly defined.
Multiple-Choice Questions
Circle the letter before the most accurate answer.
6. The line of authority extending from the top to the bottom of the organization is known as a(n)
a. informal organization.
b. line structure.
c. line-and-staff structure.
d. chain of command.
e. matrix structure.
7. In his book, The Wealth of Nations, __________ emphasized the power of specialization.
a. Karl Marx
b. Victor Vroom
c. George Washington
d. Adam Smith
e. Frederick Taylor
8. Grouping all jobs related to the same organizational activity is departmentalization by
a. function.
b. employee.
c. location.
d. customer.
e. product.
9. The act of distributing part of a manager’s work and power to workers is called
a. departmentalization.
b. organizing.
c. delegation.
d. decentralization.
e. job sharing.
10. When authority is spread to lower-level management, a business is said to be

a. centralized.
b. decentralized.
c. progressive.
d. tall.
e. upwardly mobile.
Quiz II
True-False Questions
Select the correct answer.
1. T F Span of management is the number of subordinates who will report to
each manager.
2. T F There seems to be a movement from variety in jobs to more specialization.
3. T F Most small and new organizations base departmentalization on customers.
4. T F When a manager has many subordinates, a wide span of management exists.
5. T F Staff managers usually provide support, advice, and expertise to line managers.
Multiple-Choice Questions
Circle the letter before the most accurate answer.
6. Two or more people working together in a predetermined way to achieve common goals is
known as a(n)
a. organization.
b. chain of command.
c. structure.
d. enterprise.
e. functional arrangement.
7. All of the following are reasons for job specialization except that
a. boredom from repetition is eliminated.
b. special equipment can be produced to do a specific job.
c. most jobs are too large for one person to handle.
d. a specialized job can be efficiently learned.
e. there is no loss of time by switching from one operation to another.
8. Employees at a chemical factory are systematically moved every two weeks among three
different departments in the organization. This is called
a. job trading.
b. specialization.
c. departmentalization by function.
d. job enlargement.
e. job rotation.
9. All of the following are departmentalization bases except

a. function.
b. product.
c. location.
d. customer.
e. employee.
10. A subordinate’s obligation to accomplish an assigned job is called
a. accountability.
b. responsibility.
c. job requirements.
d. delegation.
e. authority.
7.9 ANSWER KEY FOR QUIZZES I AND II
Quiz I
True-False Multiple-Choice
1. T 6. d
2. F 7. d
3. T 8. a
4. T 9. c
5. T 10. b
Quiz II
True-False Multiple-Choice
1. T 6. a
2. F 7. a
3. F 8. e
4. T 9. e
5. T 10. a
7.10 CLASSROOM EXERCISES

7.10a Homework Activities
 Developing an Organization Chart. Have students research their favorite sports team on the
Internet and develop an organization chart for its management. Have them identify whether it is a
line-and-staff structure, a matrix organization, etc.
 Researching and Following a Company Throughout the Course (continuing assignment).
Have students research how their company is organized. Does it seem to be organized by
function, product, location, customer, or some combination of bases?
 Comparing Organization Charts. Have students contact two very different local organizations
(retailing firm, manufacturing firm, church, civic club, etc.) and interview managers to develop
organization charts for each organization. How do they account for the similarities and
differences between them?
7.10b Classroom Activities

 The Delegator Exercise.
Make enough copies of “The Delegator” handout for each student. In class, each student should
have no more than five minutes to fill out the questionnaire. At the end of five minutes, give
students the scoring key and discuss the results. This assessment test helps show each student his
or her own willingness to delegate. Every task listed in the test would be a suitable task for an
administrative assistant to handle. A variation of this test is to see if students’ answers would
change if the administrative assistant had been with them for only six months (or for five years).
 What’s My Culture? Group Exercise.
Place students into groups of four or five and have them review the snippets of information
contained in the handout. They should have approximately 15 minutes to consider the values of
each of the five cultures outlined and develop a point of view as to which one or ones they
prefer. After 15 minutes, ask each group to report their conclusions and review the pros and cons
of each of the cultures outlined.
 Virtual Network Structure Exercise.
Have students form groups of four. Consider assigning background research such as the tasks faced
by a motion picture company, which will give the students an idea of the complexity of tasks
involved in bringing a group of contractors together. This is a longer exercise where it might be
appropriate to stop at intervals to determine how students are progressing in each of their groups.
 Zappos Adopts a New Organizational Structure
Have students read the Fast Company article on http://www.fastcompany.com/3024358/bottom-
line/no-managers-required-how-zappos-ditched-the-old-corporate-structure-for-somethin.
Discuss how Zappos is organized and the impact the restructuring will have on the company’s
goals. Is this an effective restructuring strategy for Zappos? Why or why not?
7.10c Exercise Handouts Follow on Next Pages
THE DELEGATOR
You are a manager for a busy, medium-sized company. You have recently been ill, and the doctor
has told you that you have to cut your workload in half. Your administrative assistant offers to take
over a number of the jobs you currently handle. The assistant has been with you for one year and has
been an excellent employee. Which activities will you delegate and to what degree? Respond using
the scale below.
0 Do not delegate.
1 Investigate and report back.
2 Investigate and recommend action.
3 Investigate and advise on action planned.
4 Investigate and take action; advise on action taken.
5 Investigate and take action.
____ 1. Reviewing your mail and e-mail, deciding what to discard, what to answer directly,
and what to pass along to you.
____ 2. Screening your calls and voice mail, deciding who gets to talk to you, who leaves a
message, and who is handled personally.
____ 3. Keeping your calendar, setting appointments, and deciding how much time each
person needs after discussing it with the caller.
____ 4. Tracking the budget for your department, making sure spending is in line with
expectations, and letting you know of any major discrepancy.
____ 5. Coordinating the absence reports for the nonmanagerial employees on the staff,
getting the information from each person every two weeks, filling in the forms, and
sending them to Human Resources.
____ 6. Calculating the numbers for the monthly revenue reports, generating revenue figures
and matching them to expense figures, and highlighting the unusual changes for you
to discuss in the comments section of the reports.
____ 7. Handling the inquiries from field operations, including trying to find the answer to
their issues before discussing them with you.
____ 8. Handling inquiries from clients, including trying to find the answers to their issues
before discussing them with you.
____ 9. Supervising the word-processor and the file clerks, coordinating their work loads, and
managing their performance, including discipline if necessary.
____ 10. Tracking your projects and reminding you when deadlines are coming or when
something needs to be followed up.
The scoring for the test is shown here:
Level of Delegation Score

Do not delegate. 0 points
Investigate and report back. 1 point
Investigate and recommend action. 2 points
Investigate and advise on action planned. 3 points
Investigate and take action; advise on action taken. 4 points
Investigate and take action. 5 points
Overall Score
0–25: Not an effective delegator. You will constantly be monitoring other people’s
work rather than getting your own work done. This is a nonproductive stage
to be in for long. The exception to this is with new employees, to make sure
they can handle their responsibilities.
26–35: You will have more time free but will still spend a great deal of time simply
reviewing other people’s work. After a few reviews to make sure the work
is done properly, this is a waste of time.
36–45: You understand delegation. While still maintaining some connection with
the work of subordinates, you are free to focus on the specifics of your job.
46–50: You may be too far removed from the work of subordinates. In some areas,
particularly when it comes to handling client and field concerns, you may
want to have information on what happened and what was done. Delegation
does not mean ignoring what goes on in your department.
What’s My Culture?
In your groups, review and discuss the following corporate cultures. If these short descriptions
were all you knew about each culture, would you consider working there? Why or why not?
Hint: Consider what the “values” (a value being a conviction that certain behaviors are superior
to others) of each of these organizations might be. You have 15 minutes.
1. Joe Powers is the personnel director for ABC Company. The primary job of his department is
to make sure that all procedures are followed as ordered by top management. All procedures
are written down in great detail, and employees are obliged to write reports confirming that
they have followed all procedures correctly.
2. Keith Kelly loves being the CEO of the company he founded several years ago and is
committed to high levels of rapid growth. Highly charismatic, he trusts his “gut” in decision
making and makes sure he is involved in everything. After all, it is his company and he
knows best!
3. Vicki Smith enjoys working at XYZ Corp. All the bosses and other employees are her
friends. Everybody is so polite, and confrontation is frowned upon. When she was ill,
everyone covered for her. She doesn’t have to worry about being criticized, even if her
performance is off a little now and then. Better yet, she doesn’t feel pressured to show
initiative and figure out new ways to do things. Everybody knows what to do.
4. Heather Huezo is really excited about her new job. She is young, but knows that she will be
promoted if she is productive and responsive to the marketplace. She has been looking a long
time for a place where people are rewarded based on performance, not on seniority. Heather
has always enjoyed being the winner; she is certain that will be the case now.
5. Peter has had a little difficulty explaining his new job to his parents, one of whom was a
teacher and the other in the military. His job is to develop new ideas for the company, to be
creative, and to make mistakes. He has been told if he doesn’t take risks and make any
mistakes he will be underperforming. “Just keep the ideas coming, young man! If they are
good, we will make them work!”
What’s My Culture? Instructor Notes
1. ABC most likely has a fragmented culture, where there is very little trust among employees,
including top management. In fact, top management appears to be very controlling and
suspicious of the activities of their employees and does not seem to trust them to do their job. It
is unlikely that students would wish to work in such an organization. Some of the values of this
organization might be conformity, obedience, and adherence to rules.
2. Working for Keith Kelly might be great fun. He is charismatic and involved in everything. On
the other hand, it is clear that he always believes he is right. Such an attitude might lead to risk
taking that could have adverse consequences. Students might wish to work for such a company
for a while, but there are real pitfalls in this culture where the boss is king. Some of the values of
this organization might be risk taking, respect for the leader, and growth.
3. Wow, on the surface XYZ sounds like the answer to a dream come true for most employees.
Upon closer reflection, however, there clearly is no pressure for performance, and innovation
does not seem to be valued. In fact, it is possible that slackers are allowed to remain on the
payroll. Again, this is not an environment conducive to a good future. The values of this
organization might be compassion, concern for employees, and lifelong employment.
4. Heather’s company appears to have some of the characteristics of the “mercenary” culture. The
key to reward is performance, and it would appear to be highly competitive. For the right
individual, who is willing to perform and enjoys competition, this would be a great place to
work. This culture appears to prize competition, performance, and achievement toward a goal.
5. This is a culture focused on entrepreneurship, creativity, and adaptability. It also appears to be very
tolerant and flexible as long as people exhibit those characteristics. Again, for the right individual,
a great place to work. The values here are creativity, risk taking, flexibility, and tolerance.
Virtual Network Structure
In a network structure, there are a few permanent administrative employees consisting of top
management and clerical services. All other functions, such as manufacturing, marketing, and
finance, are contracted out. In this exercise, you are to construct a virtual network for a hypothetical
local live entertainment company. This company can put on plays, bring in singers or comedians, or
even sponsor sports events.
In your teams of four class members, first decide who will be the president, vice president, treasurer,
and secretary. Then decide what entertainment services you wish to provide to the college
community. List all of the functions that will have to be performed by outside contractors. Be as
detailed as possible. Finally, choose a spokesperson to present your findings to the class.
Virtual Network Structure Instructor Notes
This exercise can take anywhere from 30 minutes to an hour depending on the level of detail you
request from the students. You may also wish to provide students with background data regarding
how a Hollywood movie gets made, which will give them some idea of the complexity involved. See
http://www.essortment.com/hollywood-movie-made-cost-much-money-17928.html for an example.
Encourage each team to first focus on specific types of entertainment, determining the functions that
must be performed before moving on to a different type. For example, bringing in singers and
comedians will generate a different set of function needs than will a visit from a circus. They will
quickly find that they cannot get overly ambitious in their efforts. It would also be helpful to have
them think in terms of individual tasks, which can later be placed in groups to be done by specific
contractors. A variation of this exercise could be to assign each team of students a specific event.
The events could include a circus, musical groups, plays, etc.

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Creating a Flexible Organization

INSTRUCTOR MANUAL RESOURCES

7.1 A WORD FROM THE AUTHORS

7.2 TRANSITION GUIDE

New in Chapter 7: Creating a Flexible Organization

7.3 QUICK REFERENCE GUIDE

7.4 LEARNING OBJECTIVES

7.5 BRIEF CHAPTER OUTLINE

II. Job Design

IV. Delegation, Decentralization, and Centralization

V. The Span of Management

VI. Forms of Organizational Structure

VII. Corporate Culture

VIII. Committees and Task Forces

IX. The Informal Organization and the Grapevine

7.6 COMPREHENSIVE LECTURE OUTLINE

I. WHAT IS AN ORGANIZATION? An organization is a group of two or more people

B. Major Considerations for Organizing a Business. The factors to consider when

II. JOB DESIGN

C. Alternatives to Job Specialization. Specialization can also have some negative

III. DEPARTMENTALIZATION. Departmentalization is the process of grouping jobs into

E. Combinations of Bases. Many organizations use a combination of departmentalization

IV. DELEGATION, DECENTRALIZATION, AND CENTRALIZATION. Delegation

c) The manager must create accountability. Accountability is the obligation of a

B. Decentralization of Authority. The pattern of delegation throughout an organization

1. An organization in which management consciously attempts to spread authority

V. THE SPAN OF MANAGEMENT. The fourth major step of organizing a business is

VI. FORMS OF ORGANIZATIONAL STRUCTURE. The four basic forms of organizational

VIII. COMMITTEES AND TASK FORCES

IX. THE INFORMAL ORGANIZATION AND THE GRAPEVINE. Informal organization

B. The grapevine is the informal communications network within an organization.

7.7 TEXTBOOK ANSWER KEYS

7.7a Concept Checks

Concept Check (p. 194)

7.7b Discussion Questions

7.7c Comments on Video Case

Zappos Wants to Make Customers (and Employees) Happy

7.7d Building Skills for Career Success

7.8 QUIZZES I AND II

10. When authority is spread to lower-level management, a business is said to be

9. All of the following are departmentalization bases except

7.9 ANSWER KEY FOR QUIZZES I AND II

7.10 CLASSROOM EXERCISES

7.10b Classroom Activities

7.10c Exercise Handouts Follow on Next Pages

The scoring for the test is shown here:

Level of Delegation Score

What’s My Culture? Instructor Notes

Virtual Network Structure

Virtual Network Structure Instructor Notes

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