Definition of Organizations

• An organization is a collection of people

working together in a coordinated and
structured fashion to achieve one or more
goals.
Organizations Role in Society
• Organizations exist to allow
accomplishment of work that could not be
achieved by people alone.
• As long as the goals of an organization are
appropriate, society will allow them to exist
and they can contribute to society.
 Organizations and People
• Organizations are strongly influenced by
the people that form part of them.
• Organizations can take in part of the
personality of the people within them and
their attitudes, perceptions and behaviors
affect how an organization will operate.
 The Nature of the Organizational
Environment
• The external environment is everything
outside an organization that might affect it.
• The internal environment consists of
conditions and forces within the
organization.
 The External Environment
• The general environment is the
nonspecific dimensions and forces in its
surroundings that might affect its activities.
• The task environment consists of specific
organizations or groups that are likely to
influence an organization.
 General Environment
• The economic dimension inflation, interest rates,
unemployment, and demand.
• The technological dimension refers to the
methods available for converting resources into
products or services.
• The socio-cultural dimension, customs, mores,
values, and demographic characteristics of the
society in which the organization functions.
 General Environment
• The political-legal dimension refers to
government regulation of business and the
relationship between business and
government.
• The international dimension refers to the
extent to which an organization is involved
in or affected by business in other
countries.
 Task Environment
• Organizations exist to accomplish one or
more tasks
 Task Environment Actors

• Competitors are other organizations that

compete for resources.
• Customers are whoever pays money to
acquire an organization's product or
service.
• Suppliers are organizations that provide
resources for other organizations.
 Task Environment Actors
• Regulators are units in the task
environment that have the potential to
control, regulate, or influence an
organization's policies and practices.
 Types of Regulators
• Regulatory agencies
are created by the government to protect the
public from certain business practices or to protect
organizations from one another.
• Interest groups
are groups organized by their members to attempt
to influence organizations.
 Task Environment Actors
• Labor includes all workers who provide the
service or produce the products.
• Labor is especially a concern when it is
unionized.
• Owners are individuals, groups, or organizations
who have a major stake in the organization.
• Strategic allies are two or more companies that
work together in joint ventures.
 The Internal Environment
• Board of Directors
• Employees
• Culture
 Board of Directors
• A board of directors is only required of
organizations that are incorporated;
however, many other firms have them.
• The board of directors is elected by the
stockholders and is charged with
overseeing the general management of
the firm to ensure that it is being run in a
way that best serves the stockholders'
interests.
 Employees
• When the organization's employees hold
the same values and goals as its
management, everyone wins.
• However, when managers and employees
work toward different goals everyone
suffers.
• The composition of the organization's
employees is changing, and managers
must learn how to deal effectively with
these changes.
 Culture
• The culture of an organization is the set of
values that helps its members understand
what the organization stands for, how it
does things, and what it considers
important.
• A strong organizational culture can shape
the firm's overall effectiveness and long-
term success and help employees to be
more productive.
 Organizing
• Organizing: the process by which managers
establish working relationships among
employees to achieve goals.
– Organizational Structure: formal system of task &
reporting relationships showing how workers use
resources.
– Organizational design: managers make specific
choices resulting in a given organizational structure.
• Successful organizational design depends on
the organization’s unique situation.
 Purposes of Organizing
• Divides work to be done into specific jobs and
departments.
• Assigns tasks and responsibilities associated with
individual jobs.
• Coordinates diverse organizational tasks.
• Clusters jobs into units.
• Establishes relationships among individuals,
groups, and departments.
• Establishes formal lines of authority.
• Allocates and deploys organizational resources.
 Factors Affecting Organizing

Environment

Determine
Determinedesign
design
Strategy or Technology
ororganizational
organizational
structure
structure

Human
Resources
 Determinants of Structure
 The environment: The quicker the environment
changes, the more problems face managers.
• Structure must be more flexible when environmental
change is rapid.
– Usually need to decentralize authority.
 Strategy: Different strategies require the use of
different structures.
• A differentiation strategy needs a flexible structure,
low cost may need a more formal structure.
• Increased vertical integration or diversification also
requires a more flexible structure.
 Determinants of Structure
– Technology: The combination of skills, knowledge,
tools, equipment, computers and machines used in the
organization.
• More complex technology makes it harder for managers to
regulate the organization. Technology can be measured by:
– Task Variety: new problems a manager encounters.
– Task Analyzability: programmed solutions available to a
manager to solve problems.
• High task variety and low analyzability present many unique
problems to managers.
– Flexible structure works best in these conditions.
• Low task variety and high analyzability allow managers to
rely on established procedures.
 Technology & People
 Small Batch Technology: produces small quantities of
one-of-a-kind products.
• Based on the skills of the workers who need a flexible
structure.
 Mass Production Technology: automated machines
make high volumes of standard products.
• Workers perform repetitive tasks so a formal structure works
well.
 Continuous Process Technology: totally mechanized
systems of automatic machines.
• Workers must watch for unexpected problems and react
quickly. A flexible structure is needed here.
 Determinants of Structure
 Human Resources: the final factor affecting
organizational structure.
• Higher skilled workers who need to work in
teams usually need a more flexible structure.
• Higher skilled workers often have professional
norms (CPA’s, physicians).

Managers must take into account all four

factors (environment, strategy, technology
and human resources) when designing the
structure of the organization.
 Job Design
• Job Design: group tasks into specific jobs.
• Results in a division of labor between workers that is
effective and efficient.
– Job simplification: reduction of the tasks each
worker performs.
• Too much and boredom results.
– Job enlargement: increase tasks for a given job to
reduce boredom.
– Job enrichment: increases the degree of
responsibility a worker has over a job.
• can lead to increased worker involvement.
Organizational Structure Variables
• Principles • Departmentalization
– Chain of command – Functional
– Span of control – Divisional
– Authority • Product
– Power • Customer
• Geographic
– Responsibility
• Process
 Grouping Jobs into Functions
• Once tasks are grouped into jobs, managers
must decide how to group jobs together.
– Function: people working together with similar
skills, tools or techniques to perform their jobs.
• Functional structure consists of departments

such as marketing, production, and finance.

Pros
Pros – Workers can learn from others doing similar tasks.
– Easy for managers to monitor and evaluate workers.

– Hard for one department to communicate with

Cons others.
Cons
– Managers can become preoccupied with their
department and forget the firm
A Sample of a Functional Structure

C la r k J o h n s o n
CEO

E x e c . V .P . S e n io r V . P . S e n io r V . P .
F in a n c e & A d m in . S to re s L o g is t ic s

V .P . T a x V . P . C o n t r o lle r V .P .
D is t r ib u t io n

V .P . M IS D ir e c t o r
C o r p . P la n n in g D ir e c t o r
T r a n s p o r t a t io n
 Divisional Structures
• A division is a collection of functions working
together to produce a product.
• Divisions create smaller, manageable parts of a
firm.
• Divisions develop a business-level strategy to
compete.
• A division has marketing, finance, and other
functions.
• Functional managers report to divisional managers
who then report to corporate management.
 Divisional Structures
– Product structure: divisions created according
to the type of product or service.
– Geographic structure: divisions based on the
area of a country or world served.
– Market structure: divisions based on the types
of customers served.
 Product Structure
CEO
C o r p o r a tio n

C o rp o ra te
M a n a g e rs

W a s h in g M a c h in e L ig h tin g T e le v is io n
D iv is io n D iv is io n D iv is io n
 Geographic Structure
CEO
C o r p o r a tio n

C o rp o r a te
M a n a g e rs

N o rth e rn W e s te rn S o u th e rn E a s te rn
R e g io n R e g io n R e g io n R e g io n
 Market Structure

CEO
C o r p o r a tio n

C o rp o ra te
M a n a g e rs

L a r g e B u s in e s s S m a ll B u s in e s s E d u c a tio n a l In d iv id u a l
C u s to m e rs C u s to m e rs In s titu tio n s C u s to m e rs
 Global Structures

• When managers find different problems or

demands across the globe, global solutions are
needed.
– Global geographic structure: different divisions
serve each world region.
• For customer needs that vary between regions.
– Global product structure: Customers in different
regions buy similar products so firms keep most
functional work at home and set up a division to
market product abroad.
 Matrix & Product Teams
– Matrix structure: managers group people by
function and product teams simultaneously.
• Results in a complex network of reporting

relationships.
• Very flexible and can respond rapidly to change.

• Each employee has two bosses which can cause

problems.
– Functional manager gives different directions than
product manager and employee cannot satisfy both.
– Product Team Structure: no 2-way reporting and
the members are permanently assigned to the team
and empowered to bring a product to market.
 Matrix Structure
CEO

Func.
Managers

Sales Design Production

Product
Team Managers

team A

Product
team B
Product Team
Product
team C

= two boss employee

Product Team Structure
CEO

Func.
Managers

Sales Design Production

Manufacturing Manufacturing Manufacturing

= Product Team Manager = Team member

 Hybrid Structures
• Many large organizations have divisional
structures where each manager can select the
best structure for that particular division.
– One division may use a functional structure, one
geographic, and so on.
• This ability to break a large organization into
many smaller ones makes it much easier to
manage.
 Coordinating Functions
•To ensure sufficient coordination between
functions, managers delegate authority.
– Authority: the power vested in the manager to make
decisions and use resources.
– Hierarchy of authority: describes the relative
authority each manager has from top to bottom.
• Span of Control: refers to the number of workers a

manager manages.
• Line authority: managers in the direct chain of
command for production of goods or services.
Example: Sales
• Staff authority: managers in positions that give
advice to line managers. Example: Legal
 Tall & Flat Organizations
– Tall structures have many levels of authority relative
to the organization’s size.
• As levels in the hierarchy increase, communication

gets difficult.
• The extra levels result in more time being taken to

implement decisions.
• Communications can also become garbled as it is

repeated through the firm.

– Flat structures have few levels but wide spans of
control.
• Results in quick communications but can lead to
overworked managers.
 Allocating Authority

• Authority
– The power vested in a manager to make
decisions and use resources to achieve
organizational goals by virtue of his position in
an organization
 Allocating Authority
• Hierarchy of Authority
– An organization’s chain of command,
specifying the relative authority of each
manager.
• Span of Control: the number of subordinates
who report directly to a manager
 Allocating Authority
• Line Manager
– Someone in the direct line or chain of
command who has formal authority over
people and resources
• Staff Manager
– Managers who are functional-area specialists
that give advice to line managers.
The Hierarchy of Authority and Span of Control at McDonald’s
Corporation

10-43
 Organizational Culture
• Organizational culture
– shared set of beliefs, expectations, values, and
norms that influence how members of an
organization relate to one another and cooperate
to achieve organizational goals
Sources of an Organization’s Culture
 Characteristics of Organizational
Members
• Ultimate source of organizational culture is
the people that make up the organization
• Members become similar over time which
may hinder their ability to adapt and respond
to changes in the environment
 Organizational Ethics
• Organizational Ethics
– moral values, beliefs, and rules that establish the
appropriate way for an organization and its
members to deal with each other and people
outside the organization
 Employment Relationship
• Human resource policies:
– Can influence how hard employees will work to
achieve the organization’s goals,
– How attached they will be to it
– Whether or not they will buy into its values and
norms
 Organizational Structure
• In a centralized organization:
– people have little autonomy
– norms that focus on being cautious, obeying
authority, and respecting traditions emerge
– predictability and stability are desired goals
 Organizational Structure
• In a flat, decentralized structure:
– people have more freedom to choose and control
their own activities
– norms that focus on being creative and
courageous and taking risks appear
– gives rise to a culture in which innovation and
flexibility are desired goals.
Centralization and Decentralization
• Centralization
– A function of how much decision-making authority
is pushed down to lower levels in an organization;
the more centralized an organization, the higher
the level at which decisions are made
• Decentralization
– The pushing down of decision-making authority to
the lowest levels of an organization
 Some Benefits of Decentralization
• Saves on costs of communication and
information transfer
• Improves swiftness of reacting to market
changes [e.g. Because of less specialization,
more multi-tasking]
• Reduction in costs of monitoring
• Increase in employee involvement and job
satisfaction (so more productive)
 Some Costs of Decentralization
• Duplication of information
• More “mistakes” (e.g. co-ordination in price
setting)
• Agency issues
• Harder to exploit returns to
scale/specialization
• More stress so decrease in job satisfaction and
productivity?
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