Chapter 08

Structuring
Organizations
for Today’s
Challenges

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Eight
LEARNING GOALS

1. Outline the basic principles of organization

management.
2. Compare the organizational theories of Fayol and
Weber.
3. Evaluate the choices managers make in structuring
organizations.
4. Contrast the various organizational models.
5. Identify the benefits of inter-firm cooperation and
coordination.
6. Explain how organizational culture can help
businesses adapt to change.
8-2
Profile
URSULA BURNS
Xerox

• Started as a summer intern and

moved up through Xerox.
• The only female African-
American CEO among
Fortune’s Top 150 Companies.
• Serves on many boards and
has been placed on councils by
President Obama and Vice-
President Biden.

8-3
Chapter Eight
NAME that COMPANY

This sport’s equipment company studied the CD

industry and learned to use ultraviolet inks to
print graphics on skis. It went to the cable
television industry to learn how to braid layers
of fiberglass and carbon, and adapted that
knowledge to make its products.

Name that company!

8-4
Everyone’s
Reorganizing REORGANIZATION is for
LG1 EVERYONE

• Many companies are reorganizing, especially

those in decline. Including:
- Auto makers
- Homebuilders
- Banks
• Adjusting to changing markets is normal in
capitalist economies.
• Companies must go back to basic
organizational principles and firm up the
foundation.
8-5
Building an
Organization from
the Bottom Up STRUCTURING an ORGANIZATION
LG1

• Create a division of labor

• Set up teams or departments
• Allocate resources
• Assign tasks
• Establish procedures
• Adjust to new realities

8-6
 SAFETY vs. PROFIT
(Making Ethical Decisions)

You own a lawn-mowing business and are aware of

the hazards in the job. But you’ve seen other
companies save money by eliminating safety
equipment. You’d also like to make more money.

• What do you do?

• Save money with less
safety precautions?
• What are the
consequences?
8-7
The Changing
Organization THE CHANGING ORGANIZATION
LG2

• Often change in organizations is due to evolving

business environments:
- More global competition
- Declining economy
- Faster technological change
- Pressure to protect the environment

• Customer expectations have also changed

--Consumers today want high-quality products
with fast, friendly service and all at low cost.

8-8
The Changing
Organization HOW MUCH CHANGES
LG2 in a DECADE?

Source: NewsWeek, July 26, 2010 and Fast Company, March 2010.

8-9
The Development
of Organization PRODUCTION CHANGED
Design
LG2
ORGANZIATION DESIGN

• Mass production of goods led to complexities in

organizing businesses.
• Economies of Scale --
Companies can reduce
their production costs by
purchasing raw materials
in bulk.
• The average cost of
goods decreases as
production levels rise.
8-10
Fayol’s Principles
of Organization
FAYOL’S PRINCIPLES
LG2

• Unity of command • Degree of

centralization
• Hierarchy of authority
• Clear communication
• Division of labor
channels
• Subordination of individual
• Order
interests to the general
interest • Equity
• Authority • Esprit de corps

8-11
Fayol’s Principles
of Organization ORGANIZATIONS BASED on
LG2 FAYOL’S PRINCIPLES

• Organizations in which
employees have no
more than one boss;
lines of authority are
clear.
• Rigid organizations that
often don’t respond to
customers quickly.

8-12
Max Weber and
Organizational
Theory
WEBER’S PRINCIPLES
LG2

• Employees just need to do what

they’re told.
• In addition to Fayol’s principles,
Weber emphasized:
- Job descriptions
- Written rules, decision
guidelines and detailed records
- Consistent procedures,
regulations and policies
- Staffing and promotion based
on qualifications
8-13
Turning
Principles into
Organization HIERARCHIES and COMMAND
Design
LG2

• When following Fayol and Weber, managers

control workers.
• Hierarchy -- A system in which one person is
at the top of an organization and there is a
ranked or sequential ordering from the top
down.
• Chain of Command -- The line of authority
that moves from the top of the hierarchy to the
lowest level.
8-14
Turning
Principles into
Organization
Design
TYPICAL ORGANIZATION CHART
LG2

8-15
Turning
Principles into
Organization
Design
BUREAUCRATIC ORGANIZATIONS
LG2

• Bureaucracy -- An organization with many layers of

managers who set rules and regulations and oversee
all decisions.

• It can take weeks or months to have information

passed down to lower-level employees.

• Bureaucracies can annoy customers.

8-16
Progress
Assessment PROGRESS ASSESSMENT

• What do the terms division of labor and job

specialization mean?

• What are the principles of management outlined

by Fayol?

• What did Weber add to the principles of Fayol?

8-17
Choosing
Centralized
or
Decentralized CENTRALIZATION or
Authority
LG3 DECENTRALIZATION?

• Centralized Authority -- When decision-making is

concentrated at the top level of management.

• Decentralized
Authority -- When
decision-making is
delegated to lower-level
managers and employees
more familiar with local
conditions than
headquarters is.
8-18
Choosing the
Appropriate
Span of Control
SPAN of CONTROL
LG3

• Span of Control -- The optimal number of

subordinates a manager supervises or should
supervise.
• When work is standardized, broad spans of
control are possible.
• Appropriate span narrows at higher levels of the
organization.
• The trend today is to reduce middle managers
and hire better low-level employees.
8-19
Choosing Tall
versus Flat
Organization
Structures ORGANIZATIONAL STRUCTURES
LG3

• Structures determine the way the company

responds to employee and customer needs.

• Tall Organization Structures -- An organizational

structure in which the organization chart would be tall
because of the various levels of management.

• Flat Organization Structures -- An organizational

structure that has few layers of management and a
broad span of control.

8-20
Choosing Tall
versus Flat
Organization FLAT ORGANIZATIONAL
Structures
LG3 STRUCTURE

8-21
Weighing the
Advantages and
Disadvantages of
Departmentalization
DEPARTMENTALIZATION
LG3

• Departmentalization -- Divides organizations into

separate units.
• Workers are grouped by skills and expertise to
specialize their skills.

8-22
Weighing the
Advantages and
Disadvantages of
Departmentalization
ADVANTAGES of
LG3 DEPARTMENTALIZATION

1) Employees develop skills and progress within a

department as they master skills.

2) The company can achieve economies of scale.

3) Employees can coordinate work within the

function and top management can easily direct
activities.

8-23
Weighing the
Advantages and
Disadvantages of
Departmentalization
DISADVANTAGES of
LG3 DEPARTMENTALIZATION
1) Departments may not communicate well.
2) Employees may identify with their department’s
goals rather than the organization’s.
3) The company’s response to external changes may
be slow.
4) People may not be trained to take different
managerial responsibilities, instead they become
specialists.
5) Department members may engage in groupthink and
may need outside input.
8-24
Looking at
Alternate Ways to
Departmentalize WAYS to DEPARTMENTALIZE
LG3

8-25
Looking at
Alternate Ways to
Departmentalize
WAYS to DEPARTMENTALIZE
LG3

8-26
Progress
Assessment PROGRESS ASSESSMENT

• Why are organizations becoming flatter?

• What are some reasons for having a narrow span

of control in an organization?

• What are the advantages and disadvantages of

departmentalization?

• What are the various ways a firm can

departmentalize?

8-27
Organization
Models FOUR WAYS to STRUCTURE an
LG4 ORGANIZATION

1. Line Organizations

2. Line-and-Staff
Organizations

3. Matrix-Style
Organizations

4. Cross-Functional Self-
Managed Teams

8-28
Line
Organizations LINE ORGANIZATIONS
LG4

• Line Organization -- Has direct two-way lines of

responsibility, authority and communication running
from the top to the bottom. Everyone reports to one
supervisor.
• There are no specialists, legal, accounting,
human resources or information technology
departments.
• Line managers issue orders, enforce discipline
and adjust the organization to changes.

8-29
Line-and-Staff
Organizations LINE PERSONNEL
LG4

• Line Personnel -- Workers responsible for directly

achieving organizational goals, and include
production, distribution and marketing employees.
• Line personnel have authority to make policy
decisions.

8-30
Line-and-Staff
Organizations
STAFF PERSONNEL
LG4

• Staff Personnel -- Employees who advise and assist

line personnel in meeting their goals, and include
marketing research, legal advising, IT and human
resource employees.

8-31
Line-and-Staff
Organizations SAMPLE LINE-and-STAFF
LG4 ORGANIZATION

8-32
Matrix-Style
Organizations
MATRIX ORGANIZATIONS
LG4

• Matrix Organization -- Specialists from different

parts of the organization work together temporarily on
specific projects, but still remain part of a line-and-staff
structure.

• Emphasis is on
product development,
creativity, special
projects,
communication and
teamwork.
8-33
Matrix-Style
Organizations SAMPLE MATRIX
LG4 ORGANIZATION

8-34
Matrix-Style
Organizations ADVANTAGES of the
LG4 MATRIX STYLE

• Managers have flexibility in assigning people to

projects.
• Interorganizational cooperation and teamwork is
encouraged.
• Creative solutions to product development
problems are produced.
• Efficient use of organizational resources.

8-35
Matrix-Style
Organizations DISADVANTAGES of the
LG4 MATRIX STYLE
• It’s costly and complex.
• Employees may be confused about where their
loyalty belongs.
• Good interpersonal skills and cooperative
employees are a must.
• It’s a temporary
solution to a possible
long-term problem.
• Teams are not
permanent.
8-36
Cross-Functional
Self-Managed
Teams
CROSS-FUNCTIONAL
LG4 SELF-MANAGED TEAMS

• Cross-Functional Self-Managed Teams --

Groups of employees from different departments who
work together on a long-term basis.

• A way to fix the problem of matrix-style teams is

to establish long-term teams.

• Empower teams to work closely with suppliers,

customers and others to figure out how to create
better products.

8-37
Going Beyond
Organizational GOING BEYOND
Boundaries
LG4
ORGANIZATIONAL BOUNDARIES

• Cross-functional teams work best when the voice

of the customer is heard.

• Teams that include customers, suppliers and

distributors go beyond organizational boundaries.

• Government coordinators may assist in sharing

market information beyond national boundaries.

8-38
Going Beyond
Organizational
Boundaries BUILDING SUCCESSFUL TEAMS
LG4 Important Conditions for Small Teams

• Clear purpose
• Clear goals
• Correct skills
• Mutual accountability
• Shift roles when
appropriate

Source: CIO Magazine, www.cio.com.

8-39
Progress
Assessment PROGRESS ASSESSMENT

• What’s the difference between line and staff

personnel?

• What management principle does a matrix-style

organization challenge?

• What’s the main difference between a matrix-

style organization’s structure and the use of
cross-functional teams?

8-40
Transparency
and Virtual
Organizations
REAL-TIME BUSINESS
LG5

• Networking -- Using
communications technology
to link organizations and
allow them to work together.
• Most companies are no
longer self-sufficient;
they’re part of a global
Photo Courtesy of: Marc Wathieu

business network.
• Real Time -- The present moment or actual time in
which something takes place.

8-41
Transparency
and Virtual
Organizations
TRANSPARENCY and VIRTUAL
LG5 CORPORATIONS

• Transparency -- When a company is so open to

other companies that electronic information is shared
as if the companies were one.

• Virtual Corporation -- A temporary networked

organization made up of replaceable firms that join
and leave as needed.

8-42
Transparency
and Virtual
Organizations
A VIRTUAL CORPORATION
LG5

8-43
 WHEN YOUR WORKERS
WORK for SOMEONE ELSE
(Spotlight on Small Business)

• Douglas Pick launched DAP World from his

apartment, but couldn’t produce all that was
needed.
• Started working with New
Horizons to help produce
and ship his earplugs.
• Now he sells millions of
earplugs to major outlets
like Walgreens and Rite
Aid.
8-44
Benchmarking
and Core
Competencies
BENCHMARKING and
LG5 CORE COMPETENCIES

• Benchmarking -- Compares an organization’s

practices, processes and products against the world’s
best.

• Core Competencies -- The functions an

organization can do as well as or better than any
other organization in the world.

• K2 Skis researched other companies’ practices in

order to create the best possible skis and
snowboards.
8-45
Benchmarking
and Core
Competencies
BENEFITS and CONCERNS of
LG5 HEALTHCARE OUTSOURCING

Benefits Concerns
• Provides enough staff • Lower employee
to operate the facility morale
• Cost savings • Liability
• Should patients be
informed
• Confidentiality and
security

Source: Healthcare Financial Management.

8-46
Benchmarking
and Core
Competencies
WHICH JOBS will be
LG5 OUTSOURCED NEXT?

Source: USA Today.

8-47
Adapting to
Change ADAPTING to
LG5
MARKET CHANGES

• Change isn’t easy.

Employees like to do
things the way they
always have.
• Get rid of old, inefficient
facilities and equipment.
• Use the Internet to get
to know your customers
and sell directly to them.

8-48
Adapting to
Change KEEP in TOUCH
Amazon and its Customer Database
LG5

Amazon uses information stored in databases to

reach out to customers. The company emails
customers letting them know about music, DVDs
or books they might like based on past
purchases.
• Have you ever received an email like this from Amazon or another
company?
• What benefits would a database of personal information, like past
purchases, provide Amazon?
• Do you think these databases are helpful for both companies and
consumers or are they an invasion of privacy?
8-49
 WHEN TWITTER and FACEBOOK
are OLD SCHOOL
(Social Media in Business)

• People will become so used to having social

media at their fingertips, it’ll no longer be news.

• There will be new gadgets; some will be

improvements, others will be revolutionary.

• This can lead to more people working from home

and more companies interacting directly with their
customer base.

8-50
Restructuring
for
Empowerment
RESTRUCTURING
LG5

• Restructuring -- Redesigning an organization so it

can more effectively and efficiently serve its
customers.

• Inverted Organization -- An organization that has

contact people at the top and the CEO at the bottom
of the organizational chart.

• The manager’s job is to assist and support

frontline workers, not boss them.

8-51
Restructuring
for
Empowerment
TRADITIONAL and INVERTED
LG5 ORGANIZATIONS

8-52
Creating a
Change-Oriented
Organizational ORGANIZATIONAL CULTURE
Culture
LG6

• Organizational or Corporate
Culture -- The widely shared
values within an organization that
foster unity and cooperation to
achieve common goals.

• Some of the best organizational

cultures emphasize service.

• Culture is shown in stories,

traditions and myths.
8-53
Managing the
Informal
Organization
FORMAL ORGANIZATION
LG6

• Formal Organization -- Details lines of

responsibility, authority and position.

• The formal system is often slow and

bureaucratic, but it helps guide the lines of
authority.
• No organization can be effective without formal
and informal organization.

8-54
Managing the
Informal
Organization
INFORMAL ORGANIZATION
LG6

• Informal Organization -- The system of

relationships that develop spontaneously as
employees meet and form relationships.

• Informal organization
helps foster
camaraderie and
teamwork among
employees.

8-55
Managing the
Informal LIMITATIONS of INFORMAL
Organization
LG6
ORGANIZATIONS

• The informal system is

too unstructured and
emotional on its own.

• Informal organization
may also be powerful
in resisting
management
directives.

8-56
Managing the
Informal
Organization
GROUP NORMS
Examples of Informal Group Norms
LG6

• Do your job but don’t produce more than the rest

of your group.
• Don’t tell off-color jokes or use profanity.

• Everyone is to be clean and organized at the

workstation.
• Respect and help your fellow group members.

• Drinking is done off the job – NEVER at work.

Source: CIO Magazine.

8-57
Progress
Assessment PROGRESS ASSESSMENT

• What’s an inverted organization?

• Why do organizations outsource functions?

• What’s organizational culture?

8-58