Chapter objectives

• Outline the basic principles of organization management

• Compare the organizational theories of Fayol and Weber
• Evaluate the choices managers make in structuring organizations
• Contrast the various organizational models
• Identify the benefits of interfirm cooperation and coordination
• Explain how organizational culture can help business adapt to change
In class activity
• Discuss with your teammates how can you divide tasks or department
for several specific employees in your business (group assignment)
• How many employee do you want to hire for operating your business
in this current time, in next few years?
The principles of organization management
Structuring
• Devising a division of labor – determining what work need to be done
then dividing up the tasks among your team members. Devising task into
smaller job is call job specialization
• Setting up team or department – production, marketing, accounting,
maintenance  departmentalization
• Assigning responsibility and authority, Allocating resources , Assigning
specific tasks
• Establishing procedure of accomplishing the organizational objectives
 Might develop organizational chart
Compare the organizational theories – the
changing organization
• The evolving business environment – more global competition a
declining economy, faster technology change, pressure to preserve
nature environment
• Customer expectation is change – high quality product and fast,
friendly service – at a reasonable cost. Virtuous cycle: employees and
customers impact each other and impact to business
• Managing change  critical managerial function
Organizational theories – the development of
organizational design
• Mass production – methods to produce large quantity of goods 
production process and business organization become more complex
• Business growth led to economies of scale
• Henri Fayol and Max Weber are 2 economic theoreticians who
introduced principles are still popular now
 Principles of Fayol’s organizational
theory
• Unity of command: Each worker is to report to one, and only one, boss.
• Hierarchy of authority: All workers should know to whom they report,
managers should have the right to give orders and expect others to
follow
• Division of labor: Functions are to be divided into areas of specialization
such as production, marketing, and finance
• Subordination of individual interests to the general interest,
• Authority: Managers have the right to give orders and the power to
enforce obedience. Authority and responsibility are related: whenever
authority is exercised, responsibility arises.
 Principles of Fayol’s organizational
theory
• Degree of centralization: The amount of decision-making power vested
in top management should vary by circumstances
• Clear communication channels: All workers should be able to reach
others in the firm quickly and easily.
• Order: Materials and people should be placed and maintained in the
proper location.
• Equity: A manager should treat employees and peers with respect and
justice
• Esprit de corps. A spirit of pride and loyalty should be created among
people in the firm
 Principles of Weber’s organizational
theory
Weber’s principles of organization resembled Fayol’s. In addition,
Weber emphasized:
• Job descriptions.
• Written rules, decision guidelines, and detailed records.
• Consistent procedures, regulations, and policies.
• Staffing and promotion based on qualifications.
Turning principle into organization design
Latter 1900s, managers began designing organization to control worker,
based on :
• Hierarchy system
• Chain of command
• Organization chart
 Turning principle into
organization design
Designing organization to help managers to control
workers – based on theories of Fayol and Weber
• Hierarchy system
• Chain of command
• Organization chart
• Bureaucracy
Evaluate the choices managers make in
structuring organizations
Decisions to make in structuring organization
• Centralization versus decentralization
• Breadth of span of control
• Tall versus flat organization structures
• Type of departmentalization.
Choosing centralization or decentralization
authority
Choosing the Appropriate Span of Control
• Span of control describes the optimal number of subordinates a
manager supervises or should supervise
• Lower levels – work is standardized  can apply broad span of
control
• Higher levels  narrow span control
Current trend is reducing middle levels of
manager, recruiting talented and better educated
within information technology is developing
 the span can be broader
Advantages and disadvantages of a narrow
vs. a broad span of control
Common Organization Designs
Simple Structure
A structure characterized by a low degree of
departmentalization, wide spans of control, authority
centralized in a single person, and little formalization

A Simple Structure:
Jack Gold’s Men’s
Store

EXHIBIT
16–5
 Traditional organization structures

• Traditional organization structures

• Departmentalization
• Groups people with and jobs into work units or formal teams
• These formal teams are linked to create three major types of
traditional organizational structures

Functional Divisional Matrix

Weighing the pros and cons
of Departmentalization
• Departmentalization is the
dividing of organizational
functions into separate
units
• Ways to departmentalize
• Product
• Function
• Customer group
• Geographic location
• Process
 Traditional organization
structures2: Traditional Organization
• Functional structures Structures
• People with similar skills and performing similar tasks are
grouped together into formal work units
• Members work in their functional areas of expertise
• Are not limited to businesses
• Work well for small organizations producing few products
or services
Figure 11.2 Functional structures in a business, branch
bank, and community hospital
 Takeaway 2: Traditional Organization Structures

• Potential advantages of functional structures:

• Economies of scale
• Task assignments consistent with expertise and training
• High-quality technical problem solving
• In-depth training and skill development
• Clear career paths within functions

Potential disadvantages of functional structures:

Sense of
Difficulties in Functional cooperation Narrow view of Excessive
pinpointing chimneys and common performance upward referral
responsibilities problem purpose break objectives of decisions
down
 Divisional structures
Group together people who work on the same product or process, serve similar customers, and/or are
located in the same area or geographical region
Common in complex organizations
Avoid problems associated with functional structures
Divisional structures based on product,
geography, customer, and process
Takeaway 2: Traditional Organization Structures
• Potential advantages of divisional structures:
• More flexibility in responding to environmental changes
• Improved coordination
• Clear points of responsibility
• Expertise focused on specific customers, products, and
regions
• Greater ease in restructuring

Potential disadvantages of divisional structures:

Duplication of Emphasis on
Competition and
resources and divisional goals at
poor coordination
efforts across expense of
across divisions
divisions organizational goals
Weighing the pros and cons of
Departmentalization
Pros
• Employees can develop skills in depth
and progress master more skills
• Companies can achieve economies of
scale
• Employees can coordinate work with
function, top management can easily
direct & control various departments’
activities
Cons
• Departments may not communicate well
• Employees may identify with their
department’s goals rather than the
organization’s goals
• The company’s response to external changes
may be slow.
• People may not be trained to take different
managerial responsibilities
• Department members may engage in
groupthink (they think alike) and may need
input from outside to become more creative.
Contrast the various organizational models
Basic choices in organization design:
• Line organizations: A line organization has direct two-way lines of
responsibility, authority, and communication running from the top to
the bottom of the organization, with everyone reporting to only one
supervisor. Many small businesses are organized this way.
• Line-and-staff organizations
• Matrix- style organizations
• Cross-functional self-managed team
Line-and-Staff Organizations
Takeaway 2: Traditional Organization Structures

• Matrix structure
• Combines functional and divisional structures to gain advantages and
minimize disadvantages of each
• Used in:

Service Professional Non-profit Multi-national

Manufacturing
industries fields sector corporations
Matrix organization, in which specialists from different parts of the organization work
together temporarily on specific projects, but still remain part of a line-and-staff structure

organizations
Matrix-style
Figure 11.4 Matrix structure in a small, multi-project
business firm
Takeaway 2: Traditional Organization Structures
• Potential advantages of matrix structures:
• Better cooperation across functions
• Improved decision making
• Increased flexibility in restructuring
• Better customer service
• Better performance accountability
• Improved strategic management

Potential disadvantages of matrix structures:

Two-boss Two-boss Increased

system can Team
system is Team may costs due to
create task meetings are
susceptible to develop adding team
confusion and time
power conflict in work “groupitis ” leaders to
consuming
struggles priorities structure
Cross-functional self-managed teams
• Established long-lived teams and empower them to work closely with
customers, suppliers and other as solution for matrix teams
• Cross-functional self managed teams are group of employees from
different departments who work together on a long-term basis
• Self-managed means they are empowered to make decisions without
management approval
Identify the benefits of interfirm
cooperation and coordination.
Major concepts involved in interfirm communications:
• Networking uses communications technology.
• A virtual corporation is a networked organization of replaceable firms.
• Benchmarking shows firms’ performance measures up to that of their
competitors in specific functions.
• Outsource can be used for weaker functions inside organizations to enhance
the effectiveness. The functions that are left are the firm’s core competencies.
What is an inverted organization?
An inverted organization places employees at the top of the hierarchy;
managers are at the bottom to train and assist employees
 Managing interactions among firms

Networking: using communications

technology and other means to link
organization and allow them to work together
on common objectives
Virtual corporation: A temporary networked
organization made up of replaceable firms
that join and leave as needed
Benchmarking: Comparing an organization’s
practices, processes, and products against the
world’s best
 Contrast the various organizational models
• What are the latest trends in structuring?
Departments are often replaced or
supplemented by matrix organizations and
cross-functional teams that decentralize
authority.
• The span of control becomes larger as
employees become self-directed.
• Another trend is to eliminate managers and
flatten organizations.
How organizational culture can help
businesses adapt to change
• Organizational (or corporate) culture consists of the widely shared values within an organization that foster
unity and cooperation to achieve common goals.
• Some of the best organizations have cultures that emphasize service to others
• The atmosphere reflects friendly, caring people, joying working together to provide a good product at a reasonable price.
• Companies that have such cultures have less need for close supervision of employees  fewer policy manuals;
organization charts; and formal rules, procedures, and controls.
• The key to a productive culture is mutual trust
• The best companies stress high moral and ethical values such as honesty, reliability, fairness, environmental protection,
and social involvement.
• What is the difference between the formal and informal organization of a firm?
• The formal organization details lines of responsibility, authority, and position. It’s the structure shown on organization
charts. The informal organization is the system that develops spontaneously as employees meet and form cliques,
relationships, and lines of authority outside the formal organization. It’s the human side of the organization.
• The informal organization is an invaluable managerial asset that often promotes harmony among workers and
establishes the corporate culture. As effective as the informal organization may be in creating group cooperation, it can
still be equally powerful in resisting management directives.