5/21/2013

Chapter Eight

Chapter 08

LEARNING GOALS

1. Outline the basic principles of organization

management.

Structuring
Organizations
for Todays
Challenges

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.

McGraw-Hill/Irwin

Profile

8-2

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter Eight

URSULA BURNS

NAME that COMPANY

Xerox

Started as a summer intern and

moved up through Xerox.

This sports 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.

The only female AfricanAmerican CEO among

Fortunes Top 150 Companies.
Serves on many boards and
has been placed on councils by
President Obama and VicePresident Biden.

Name that company!

8-3

Everyones
Reorganizing
LG1

8-4

Building an
Organization from
the Bottom Up

REORGANIZATION is for
EVERYONE

STRUCTURING an ORGANIZATION

LG1

Many companies are reorganizing, especially

those in decline. Including:

Create a division of labor

Set up teams or departments

- Auto makers
- Homebuilders
- Banks

Allocate resources
Assign tasks

Adjusting to changing markets is normal in

capitalist economies.

Establish procedures
Adjust to new realities

Companies must go back to basic

organizational principles and firm up the
foundation.
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The Changing
Organization

SAFETY vs. PROFIT

(Making Ethical Decisions)

THE CHANGING ORGANIZATION

LG2

Often change in organizations is due to evolving

business environments:

You own a lawn-mowing business and are aware of

the hazards in the job. But youve seen other
companies save money by eliminating safety
equipment. Youd also like to make more money.

What do you do?

Save money with less
safety precautions?

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.

What are the

consequences?
8-7

The Changing
Organization

The Development
of Organization
Design

HOW MUCH CHANGES

in a DECADE?

LG2

8-8

LG2

What?

2000

2010

Amount of cell phone use

34%

89%
141,000,000

Number of active blogs

12,000

Amount of reality shows

320

Daily emails sent

12 billion

247 billion

Number of hours spent online per week

2.7

18

Number of daily newspapers

1,480

1,302

Number of daily letters mailed

207 billion

175 billion

Amount of books published

282,242

1,052,803

iTunes downloads

10 billion

Percentage of obese Americans

26%

34%

PRODUCTION CHANGED
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.

Source: NewsWeek, July 26, 2010 and Fast Company, March 2010.
8-9

Fayols Principles
of Organization

Fayols Principles
of Organization

FAYOLS PRINCIPLES

LG2

Unity of command
Hierarchy of authority
Division of labor
Subordination of individual
interests to the general
interest
Authority

8-10

LG2

Degree of
centralization

ORGANIZATIONS BASED on
FAYOLS PRINCIPLES

Organizations in which
employees have no
more than one boss;
lines of authority are
clear.

Clear communication
channels
Order

Rigid organizations that

often dont respond to
customers quickly.

Equity
Esprit de corps

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Max Weber and

Organizational
Theory

Turning
Principles into
Organization
Design

WEBERS PRINCIPLES

LG2

HIERARCHIES and COMMAND

LG2

Employees just need to do what

theyre told.

When following Fayol and Weber, managers

control workers.

In addition to Fayols principles,

Weber emphasized:

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.

- Job descriptions
- Written rules, decision
guidelines and detailed records
- Consistent procedures,
regulations and policies
- Staffing and promotion based
on qualifications

Chain of Command -- The line of authority

that moves from the top of the hierarchy to the
lowest level.
8-13

Turning
Principles into
Organization
Design

8-14

Turning
Principles into
Organization
Design

TYPICAL ORGANIZATION CHART

LG2

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.

8-15

Progress
Assessment

8-16

Choosing
Centralized
or
Decentralized
Authority

PROGRESS ASSESSMENT

LG3

What do the terms division of labor and job

specialization mean?

CENTRALIZATION or
DECENTRALIZATION?

Centralized Authority -- When decision-making is

concentrated at the top level of management.

Decentralized
Authority -- When

What are the principles of management outlined

by Fayol?

decision-making is
delegated to lower-level
managers and employees
more familiar with local
conditions than
headquarters is.

What did Weber add to the principles of Fayol?

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Choosing the
Appropriate
Span of Control

Choosing Tall
versus Flat
Organization
Structures

SPAN of CONTROL

ORGANIZATIONAL STRUCTURES

LG3

LG3

Span of Control -- The optimal number of

Structures determine the way the company

responds to employee and customer needs.

subordinates a manager supervises or should

supervise.

Tall Organization Structures -- An organizational

When work is standardized, broad spans of

control are possible.

structure in which the organization chart would be tall

because of the various levels of management.

Appropriate span narrows at higher levels of the

organization.

Flat Organization Structures -- An organizational

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

The trend today is to reduce middle managers

and hire better low-level employees.
8-19

Choosing Tall
versus Flat
Organization
Structures
LG3

8-20

Weighing the
Advantages and
Disadvantages of
Departmentalization

FLAT ORGANIZATIONAL
STRUCTURE

DEPARTMENTALIZATION

LG3

Departmentalization -- Divides organizations into

separate units.

Workers are grouped by skills and expertise to

specialize their skills.

8-21

Weighing the
Advantages and
Disadvantages of
Departmentalization

LG3

8-22

Weighing the
Advantages and
Disadvantages of
Departmentalization

ADVANTAGES of
DEPARTMENTALIZATION

LG3

DISADVANTAGES of
DEPARTMENTALIZATION

1) Departments may not communicate well.

1) Employees develop skills and progress within a

department as they master skills.

2) Employees may identify with their departments

goals rather than the organizations.

2) The company can achieve economies of scale.

3) The companys response to external changes may

be slow.

3) Employees can coordinate work within the

function and top management can easily direct
activities.

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.
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Looking at
Alternate Ways to
Departmentalize

Looking at
Alternate Ways to
Departmentalize

WAYS to DEPARTMENTALIZE

LG3

WAYS to DEPARTMENTALIZE

LG3

8-25

Progress
Assessment

8-26

Organization
Models

PROGRESS ASSESSMENT

LG4

FOUR WAYS to STRUCTURE an

ORGANIZATION

Why are organizations becoming flatter?

1. Line Organizations

What are some reasons for having a narrow span

of control in an organization?

2. Line-and-Staff
Organizations

What are the advantages and disadvantages of

departmentalization?

3. Matrix-Style
Organizations

What are the various ways a firm can

departmentalize?

4. Cross-Functional SelfManaged Teams

8-27

Line
Organizations

8-28

Line-and-Staff
Organizations

LINE ORGANIZATIONS

LINE PERSONNEL

LG4

LG4

Line Organization -- Has direct two-way lines of

Line Personnel -- Workers responsible for directly

achieving organizational goals, and include
production, distribution and marketing employees.

responsibility, authority and communication running

from the top to the bottom. Everyone reports to one
supervisor.

Line personnel have authority to make policy

decisions.

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

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Line-and-Staff
Organizations

Line-and-Staff
Organizations

STAFF PERSONNEL

LG4

LG4

SAMPLE LINE-and-STAFF
ORGANIZATION

Staff Personnel -- Employees who advise and assist

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

8-31

Matrix-Style
Organizations

8-32

Matrix-Style
Organizations

MATRIX ORGANIZATIONS

LG4

LG4

SAMPLE MATRIX
ORGANIZATION

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
LG4

8-34

Matrix-Style
Organizations

ADVANTAGES of the
MATRIX STYLE

LG4

DISADVANTAGES of the
MATRIX STYLE

Its costly and complex.

Employees may be confused about where their
loyalty belongs.
Good interpersonal skills and cooperative
employees are a must.

Managers have flexibility in assigning people to

projects.
Interorganizational cooperation and teamwork is
encouraged.

Its a temporary
solution to a possible
long-term problem.
Teams are not
permanent.

Creative solutions to product development

problems are produced.
Efficient use of organizational resources.

8-35

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Cross-Functional
Self-Managed
Teams
LG4

Going Beyond
Organizational
Boundaries

CROSS-FUNCTIONAL
SELF-MANAGED TEAMS

LG4

Cross-Functional Self-Managed Teams --

GOING BEYOND
ORGANIZATIONAL BOUNDARIES

Cross-functional teams work best when the voice

of the customer is heard.

Groups of employees from different departments who

work together on a long-term basis.

Teams that include customers, suppliers and

distributors go beyond organizational boundaries.

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

to establish long-term teams.

Government coordinators may assist in sharing

market information beyond national boundaries.

Empower teams to work closely with suppliers,

customers and others to figure out how to create
better products.
8-37

Going Beyond
Organizational
Boundaries

BUILDING SUCCESSFUL TEAMS

LG4

Important Conditions for Small Teams

8-38

Progress
Assessment

PROGRESS ASSESSMENT

Whats the difference between line and staff

personnel?

Clear purpose
Clear goals
Correct skills
Mutual accountability

What management principle does a matrix-style

organization challenge?

Shift roles when

appropriate

Whats the main difference between a matrixstyle organizations structure and the use of
cross-functional teams?

Source: CIO Magazine, www.cio.com.

8-39

Transparency
and Virtual
Organizations

8-40

Transparency
and Virtual
Organizations

REAL-TIME BUSINESS

LG5

LG5

TRANSPARENCY and VIRTUAL

CORPORATIONS

Networking -- Using
communications technology
to link organizations and
allow them to work together.

Most companies are no

longer self-sufficient;
theyre part of a global
business network.

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.

Photo Courtesy of: Marc Wathieu

Real Time -- The present moment or actual time in

which something takes place.
8-41

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Transparency
and Virtual
Organizations

WHEN YOUR WORKERS

WORK for SOMEONE ELSE

A VIRTUAL CORPORATION

LG5

(Spotlight on Small Business)

Douglas Pick launched DAP World from his

apartment, but couldnt 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.
8-43

Benchmarking
and Core
Competencies
LG5

8-44

Benchmarking
and Core
Competencies

BENCHMARKING and
CORE COMPETENCIES

LG5

Benchmarking -- Compares an organizations

BENEFITS and CONCERNS of

HEALTHCARE OUTSOURCING
Benefits

practices, processes and products against the

worlds best.

Core Competencies -- The functions an

Concerns

Provides enough staff

to operate the facility

Lower employee
morale

Cost savings

Liability
Should patients be
informed

organization can do as well as or better than any

other organization in the world.

Confidentiality and
security

K2 Skis researched other companies practices

in order to create the best possible skis and
snowboards.
Source: Healthcare Financial Management.
8-45

Benchmarking
and Core
Competencies
LG5

8-46

Adapting to
Change

WHICH JOBS will be

OUTSOURCED NEXT?

LG5

ADAPTING to
MARKET CHANGES

Change isnt 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.
Source: USA Today.
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Adapting to
Change
LG5

WHEN TWITTER and FACEBOOK

are OLD SCHOOL

KEEP in TOUCH
Amazon and its Customer Database

(Social Media in Business)

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.

People will become so used to having social

media at their fingertips, itll no longer be news.
There will be new gadgets; some will be
improvements, others will be revolutionary.

Have you ever received an email like this from Amazon or another
company?

This can lead to more people working from home

and more companies interacting directly with their
customer base.

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

Restructuring
for
Empowerment

8-50

Restructuring
for
Empowerment

RESTRUCTURING

LG5

LG5

TRADITIONAL and INVERTED

ORGANIZATIONS

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 managers job is to assist and support

frontline workers, not boss them.
8-51

Creating a
Change-Oriented
Organizational
Culture

8-52

Managing the
Informal
Organization

ORGANIZATIONAL CULTURE

LG6

FORMAL ORGANIZATION

LG6

Organizational or Corporate
Culture -- The widely shared

Formal Organization -- Details lines of

responsibility, authority and position.

values within an organization that

foster unity and cooperation to
achieve common goals.

The formal system is often slow and

bureaucratic, but it helps guide the lines of
authority.

Some of the best organizational

cultures emphasize service.

No organization can be effective without formal

and informal organization.

Culture is shown in stories,

traditions and myths.
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Managing the
Informal
Organization

Managing the
Informal
Organization

INFORMAL ORGANIZATION

LIMITATIONS of INFORMAL
ORGANIZATIONS

LG6

LG6

Informal Organization -- The system of

The informal system is

too unstructured and
emotional on its own.

relationships that develop spontaneously as

employees meet and form relationships.

Informal organization
helps foster
camaraderie and
teamwork among
employees.

Informal organization
may also be powerful
in resisting
management
directives.

8-55

Managing the
Informal
Organization
LG6

8-56

Progress
Assessment

GROUP NORMS

PROGRESS ASSESSMENT

Examples of Informal Group Norms

Do your job but dont produce more than the

rest of your group.

Whats an inverted organization?

Dont tell off-color jokes or use profanity.

Why do organizations outsource functions?

Everyone is to be clean and organized at the

workstation.

Whats organizational culture?

Respect and help your fellow group members.

Drinking is done off the job NEVER at work.
Source: CIO Magazine.

8-57

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10