MANAGEMENT CHAPTER 10
chain of command
An unbroken line of authority that links all individuals in the organization and specifies who reports to whom.
cross-functional teams
A group of employees from various functional departments that meet as a team to resolve mutual problems.
Collaboration
A joint effort between people from two or more departments to produce outcomes that meet a common goal or shared purpose.
flat structure
An organizational structure characterized by an overall broad span of management and relatively few hierarchical levels.
tall structure
An organizational structure characterized by an overall narrow span of management and a relatively large number of hierarchical levels.
functional structure
An organizational structure in which activities are grouped together by common function from the bottom to the top of the organization.
decentralization example
As mentioned previously, Walmart is experimenting with greater decentralization in some stores by having fewer managers handling multiple departments and teams. This structure gives more decision-making authority to people on the sales floor, who can handle many requests such as accepting returns or changing a price that once had to go through multiple authorizations. Results so far have shown that labor costs are lower and frontline workers are more engaged under the new structure.
As organizations grow larger, coordinating their various activities becomes more complex. Complete the following sentences with the correct term. ____________is important if people from different departments are going to work together to produce better outcomes than they could individually.
Collaboration is a joint effort between people from two or more departments to produce outcomes they all desire and that are greater than what any of the individuals could achieve working alone. Reengineering is the radical redesign of business processes. A task force is used to solve a problem involving multiple departments. Mass production is a type of technology that produces large amounts of a standardized product.
Design 1 A factory in which assembly-line workers create low-cost, standardized cakes to be sold in grocery stores
Design 1 is a mass production design. Assembly-line workers produce large amounts of standardized products, and all customers receive the same product.
In the following table, indicate which of the following outcomes reflect likely benefits and which reflect possible drawbacks of the men's new work structure. Benefit or Drawback The workers may focus on their own needs and not understand or be concerned with the needs of the four workers doing different jobs.
Drawback Although specialization generally increases efficiency within any given step of a multistep process, it can also generate coordination issues. In the new structure, each person will work in his own department, and he may make decisions that are personally advantageous to him but not necessarily in the best interest of the group.
chain of command example
For example, at Standard Chartered Bank, described earlier, managers of the business lines report directly to the CEO. Chief digital officers often report to a chief information officer, who in turn reports to the CEO.
Division of labor
Managers in every organization face the question about how to organize for maximum efficiency and effectiveness. Organizing refers to the deployment of organizational resources to achieve strategic goals. In recent years, managers at many organizations, including the U.S. Marine Corps, Procter & Gamble, and Zappos, have undertaken structural modifications to attain new strategic goals or to cope with environmental changes. Organization structure is defined as the framework in which the organization defines how tasks are divided, resources are deployed, and departments are coordinated. An organization chart is a visual representation of an organization's structure. Fundamental characteristics of vertical organization structure include division of labor, chain of command, span of management, and centralization and decentralization. Division of labor, sometimes called work specialization, is the degree to which organizational tasks are subdivided into individual jobs. Top executives often create new positions or departments to deal with new strategic issues. Spotify established a new position of chief content officer when the company wanted to move beyond music, and Walmart created the position of chief global technology officer to help it compete better against Amazon.
Centralization
Means that decision authority is located near top organization levels.
decentralization
Means that decision authority is pushed down to lower organization levels.
Accountability
Means that people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command.
Remember This
Small-batch production is a type of manufacturing technology that involves the production of goods in batches of one or a few products designed to customer specifications. Mass production is characterized by long production runs to manufacture a large volume of products with the same specifications. Continuous process production involves mechanization of the entire workflow and nonstop production, such as in chemical plants or petroleum refineries. Small-batch and continuous process technologies are associated with a more flexible horizontal structure, whereas a tighter vertical structure is appropriate for mass production. Manufacturing technologies differ in terms of technical complexity, which refers to the degree to which complex machinery is involved in the production process to the exclusion of people.
Network Approach to Departmentalization example
Software development start-up GitLab provides an example. GitLab has more than 600 employees in 54 countries, but it has no offices. All of GitLab's employees, even the CEO, work remotely, using collaboration tools and cloud services to communicate and complete projects. About half of GitLab's salaried employees update and support applications, with the other half working in sales, marketing, and administrative jobs. The virtual structure enables GitLab to operate at lower cost and hire people on contract as needed to complete projects.
functional structure example
Southwest has used a functional structure since its beginning as a local carrier in Texas to its current position as a low-cost international airline. Southwest relies on in-depth expertise in functional groups such as finance, marketing, daily operations, ground operations, inflight operations, and maintenance operations. Another example is Blue Bell Creameries, which has functional departments such as marketing, plant operations, quality control, maintenance, distribution, research and development (R&D), and finance. The quality control department, for example, tests all incoming ingredients and also tests outgoing products.
departmentalization
The basis for grouping individual positions into departments and departments into the total organization.
Division of labor
The degree to which organizational tasks are subdivided into separate jobs. Also called work specialization.
Responsibility
The duty to perform the task or activity that one has been assigned.
Authority
The formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve outcomes desired by the organization.
Line authority
The formal power to direct and control immediate subordinates.
Organization structure
The framework in which an organization defines how tasks are divided, resources are deployed, and departments are coordinated. 1. the set of formal tasks assigned to individuals and departments; 2. formal reporting relationships, including lines of authority, decision responsibility, number of hierarchical levels, and span of managers' control; and 3. the design of systems to ensure effective coordination of employees across departments.
span of management example
Walmart is expanding the span of management in many of its stores. Rather than having many department managers, each focused on handling a single department, Walmart has been testing a new structure with fewer, higher-paying manager jobs focused on managing multiple departments and teams of workers. The company is testing several versions of the concept, called "Great Workplace," in approximately 100 Walmart Neighborhood Markets and smaller supercenters.
organization chart
a visual representation of an organization's structure
Geographic- or Customer-Based Divisions
group activities by geography or customer
Line departments
perform tasks that reflect the organization's primary goal and mission. In a software company, line departments make and sell the product. In an Internet-based company, line departments would be those that develop and manage online offerings and sales.
Factors Affecting Organization Structure
strategic needs (environment, strategy, goals) and operational needs (technology, work processes)
Structure Follows Strategy
•Business performance is influenced by how well structure is aligned with strategy and needs of the environment •Structural responses to strategy and environment −Mechanistic organizations: efficiency is the goal in a stable environment Organic organizations: innovation is the goal in a rapidly changing environment
Factors that influence centralization:
−Rapid change and uncertainty in the environment are associated with decentralization −Crisis requires centralization Fits the strategy
span management depends on:
−Work is stable and routine −Subordinates perform similar work −Subordinates are in one location −Subordinates are highly trained −Rules and procedures are defined −Support systems and personnel are available −Few nonsupervisory activities Manager prefers a large span
Delegation
When managers transfer authority and responsibility to positions below them in the hierarchy.
Federated Investors has a based structure , with each mutual fund being managed by several portfolio managers who together take responsibility for the fund's performance.
A firm with a team-based structure organizes each department as a team of employees who are jointly responsible and accountable for the team's assigned work. Teams are not an adjunct means of increasing communication between functional areas. Instead, they become the fundamental structural unit of the organization. This structure helps companies adapt quickly to customer requests and environmental changes, and employees tend to feel highly motivated.
According to Joan Woodward, which of the following conclusions is most likely to be true? A small-batch production process will allow you to charge the maximum amount per cake. Managers are most likely to spend the most time with an individual employee in a bakery that has a mass production design. The most effective design for a bakery that is using a differentiation strategy is mass production. Bakeries that are operating in a rapidly changing, highly competitive environment should choose a mass production design.
A small-batch production process will allow you to charge the maximum amount per cake. Organizations that have small-batch production processes can charge high amounts for their products, because each product is tailored to the needs of an individual customer. This does not necessarily translate into increased profitability, because small-batch production companies make far fewer products than mass production or continuous process companies.
Matrix approach:
A structural approach that uses both functional and divisional chains of command simultaneously, in the same part of the organization.
To solve a problem, a manager might establish and lead a temporary ________ of people from different departments. This group would disband once the problem was solved.
A task force is one way to increase coordination in an organization. It is a temporary team or committee established to solve a problem involving several departments. After the problem is solved, the task force disbands. A cross-functional team exists to solve ongoing problems and may stay together for several years. This group is led by a manager, so it is not a self-managed team. A virtual network is a type of organizational structure.
task force
A temporary team or committee designed to solve a problem involving several departments.
task force example
After it acquired Time Warner and rebranded it as WarnerMedia, AT&T created numerous task forces to work on issues ranging from programming to data analytics. At the time of the acquisition, infighting and turf battles had long characterized the relationships among Time Warner's three major divisions: HBO, Turner, and Warner Brothers. Soon after the acquisition deal was closed, AT&T executives created several task forces, called "workstreams," made up of people from each of the three units, to analyze the rapid changes in the media industry and brainstorm ideas for how to address them. The workstreams were the beginning of AT&T's efforts to break down fiefdoms and get the divisions working together. "I couldn't remember many times over the years where you'd have all three companies deciding strategy together," said a long-time Time Warner employee.
Cisco Systems uses a differentiation strategy. It offers its customers the latest in routers and switches. Cisco products may cost a bit more, but customers believe they are worth every penny. Cisco Systems will be more effective if it has_______ structure. Which of the following reasons explain this? Check all that apply. Vertical communication flows ensure that decisions are standardized throughout the company. Narrower spans of management and centralized decision making offer improved product control. Shorter chains of command and horizontal communication allow for increased innovation. Decentralized decision making allows for greater flexibility in meeting customer needs.
An Organic Shorter chains of command and horizontal communication allow for increased innovation. Decentralized decision making allows for greater flexibility in meeting customer needs. Companies using differentiation strategies place a premium on flexibility and innovation. Both of these things are achieved through the use of an organic structure. Decentralized decision making, in particular, allows employees the opportunity to follow their own ideas or customer suggestions and, in the process, develop new products.
Network Approach to Departmentalization
An organizational structure in which the organization subcontracts most of its major functions to separate companies and coordinates their activities from a small headquarters organization.
divisional structure
An organizational structure that groups employees and departments based on similar organizational outputs (products or services), such that each division has a mix of functional skills and tasks.
Authority Principles
Authority is vested in organizational positions, not people. Managers have authority because of the positions they hold, and other people in the same positions would have the same authority. Authority flows down the vertical hierarchy. Positions at the top of the hierarchy are vested with more formal authority than are positions at the bottom. Authority is accepted by subordinates. Although authority flows from the top down, subordinates comply because they believe managers have a legitimate right to issue orders. The acceptance theory of authority argues that a manager has authority only if subordinates choose to accept his or her commands. If subordinates refuse to obey because the order is outside their zone of acceptance, a manager's authority disappears.
In the following table, indicate which of the following outcomes reflect likely benefits and which reflect possible drawbacks of the men's new work structure. Benefit or drawback Each worker will become more productive, because he will develop a high level of expertise in his task.
Benefit Specialization has the advantage of allowing each worker to devote more time to a single task and thus develop greater proficiency with it than if he needed to perform multiple tasks.
In the following table, indicate which of the following outcomes reflect likely benefits and which reflect possible drawbacks of the men's new work structure. Benefit or drawback The cost of renting one large blanket-selling stand at the market is less than the combined cost of renting five small stands.
Benefit The fact that the cost of a large market stand is less than the cost of five smaller stands reflects one of the key benefits of specialization. It is often the case that, as the scale of an operation increases, the average cost decreases. In this case, it is more efficient for one person to perform more of one task than for multiple people to do each task in smaller quantities.
Remember This
Contingency factors of strategic goals, environment, and technology influence the correct structural approach. Walmart combined its online and store product-buying, supply chain, and finance teams to promote stronger horizontal coordination and speed up decision making in its rapidly changing environment. A mechanistic, vertical structure is appropriate for a cost leadership strategy, which typically occurs in a stable environment. An organic, horizontal approach is needed for a differentiation strategy and when the organization needs flexibility to cope with an uncertain environment.
What problem might the CEO expect if the company switches to a team-based structure? Functional and product managers may have conflicting goals. There will be less innovation across the company. Decentralized decision making may reduce economies of scale, making the company less efficient.
Decentralized decision making may reduce economies of scale, making the company less efficient. Teams would not have functional and product managers, and they would increase innovation by transferring decision making to frontline employees. However, when decisions are not coordinated, the company, as a whole, may lose economies of scale. Suppose, for example, that each team purchases a different inventory control system. The different systems might work well for different products, but it would be cheaper for the entire company to have one overall inventory control system.
Remember This
Departmentalization is the basis for grouping individual positions into departments, and departments into the total organization. Three traditional approaches to departmentalization are functional, divisional, and matrix. A functional structure groups employees into departments based on similar skills, tasks, and use of resources. The divisional structure groups employees and departments based on similar organizational outputs (products or services), such that each division has a mix of functional skills and tasks. An alternative approach to divisional structure is to group employees and departments based on geographic region or customer group. The Disney Channel is structured into geographic divisions to better address the interests of children and teens in different parts of the world. The matrix approach uses both functional and divisional chains of command simultaneously, in the same part of the organization. In a matrix structure, some employees, called two-boss employees, report to two supervisors simultaneously. A matrix boss is a functional or product supervisor responsible for one side of the matrix. In a matrix structure, the top leader oversees both the product and the functional chains of command and is responsible for the entire matrix. Each approach to departmentalization has distinct advantages and disadvantages.
"If our company achieves a high level of relational coordination, what can we expect in terms of employee behavior?" Check all that apply. Employees in different departments or divisions will share information easily. Employees will be empowered to collaborate directly with each other across organizational boundaries. Information will flow across a network of informal relationships rather than primarily through a formal chain of command. Project managers, cross-functional teams, and task forces will play a vital role in sharing information between departments or divisions.
Employees in different departments or divisions will share information easily. Employees will be empowered to collaborate directly with each other across organizational boundaries. Information will flow across a network of informal relationships rather than primarily through a formal chain of command. In organizations with a high level of relational coordination, communicating frequently in a mutually respectful way is part of the company's culture. It does not depend on formal mechanisms, such as project managers, cross-functional teams, or task forces, to occur. Instead, employees will work within a web of positive relationships and feel empowered to share information across organizational boundaries whenever needed.
divisional structure example
For example, Procter & Gamble (P&G) has six product divisions: beauty, baby and feminine care, fabric and home care, family care, grooming, and health care. The CEO of each unit has responsibility for sales, product innovation, supply chains, and other operations for that unit. United Technologies Corporation (UTC), which is among the 50 largest U.S. industrial firms, has numerous divisions, including Carrier (air conditioners and heating), Otis (elevators and escalators), Pratt & Whitney (aircraft engines), and Collins Aerospace (technology products for the aerospace and defense industries).
cross-functional teams example
For example, at Total Attorneys (now part of Martindale Legal Marketing Network), a Chicago-based company that provides cloud-based software and services to small law firms, founder and former CEO Ed Scanlan realized that the functional structure, which broke down projects into sequential stages that moved from one department to another, was slowing things down so much that clients' needs had sometimes changed by the time the product was completed. He solved this problem by creating small, cross-functional teams to increase horizontal coordination. Now, designers, coders, and quality-assurance testers work closely together on each customer project.
Division of labor example
For example, to compete more effectively against Amazon, Walmart created a new position of global chief technology officer to speed its digital transformation and hired a former executive from Amazon and Google to fill the job. Warner Media also created a new position, chief diversity and inclusion officer, to address employee concerns about the lack of women and minorities in the corporation's upper ranks.
GardenGrow is a garden supply company that produces and sells garden tools and compost. Managers for tools and compost report directly to the CEO. Each of these managers supervises employees in sales, manufacturing, and accounting. Here is the organizational chart showing the structure for GardenGrow: GardenGrow has a structure. Which of the following characteristics would you expect GardenGrow to have? Check all that apply. By bringing employees together to make a single product, this company breaks down barriers between departments. Decision making in this company occurs lower in the chain of command, with product managers responsible for problem solving. Certain functions within the company will be duplicated within each division. Functional departments within this company form silos, and there is little communication between them.
GardenGrow has a divisional structure. Divisional organizations cluster employees together so that they can focus on a particular product or customer. This is a more decentralized structure than the traditional functional structure, and divisional managers are given a good deal of control over their divisions. This can improve horizontal communication between functional departments and produce a more flexible organization. At the same time, having similar functions in each division can cause duplication of effort across the organization.
Remember This
In addition to the vertical structure, every organization needs mechanisms for horizontal integration and coordination. Coordination refers to the managerial task of adjusting and synchronizing the diverse activities among different individuals and departments. Collaboration means a joint effort between people from two or more departments to produce outcomes that meet a common goal or shared purpose. Coordination and collaboration are key to success for today's digitally advanced companies, such as CarMax, which broke down the silos between departments so that "all parts work together to deliver a simple and seamless customer experience." As organizations grow, they add new positions, departments, and hierarchical levels, which leads to greater coordination problems. Ways to increase horizontal coordination include task forces, teams, project managers, and relational coordination. A task force is a temporary team or committee formed to solve a specific short-term problem involving several departments. After acquiring Time Warner, AT&T created numerous task forces made up of people from the three major divisions—HBO, Turner, and Warner Brothers—to work on issues ranging from programming to data analytics. A project manager is a person responsible for coordinating the activities of several departments for the completion of a specific project. Companies often shift to a more horizontal approach after going through reengineering, which refers to the radical redesign of business processes to achieve dramatic improvements in cost, quality, service, and speed. Relational coordination refers to frequent horizontal coordination and communication carried out through ongoing relationships of shared goals, shared knowledge, and mutual respect. Southwest Airlines achieves the shortest turnaround time in the airline industry because managers foster relational coordination among the varied people and departments involved in the flight departure process
Remember This
Popular contemporary approaches to departmentalization include team and virtual network structures. A cross-functional team is a group of employees from various functional departments that meet as a team to resolve mutual problems. Total Attorneys uses cross-functional teams to improve coordination on its software and services projects for small law firms. A permanent team is a group of employees from all functional areas permanently assigned to focus on a specific task or activity. A team-based structure is one in which the entire organization is made up of horizontal teams that coordinate their activities and work directly with customers to accomplish organizational goals. Both the U.S. based retailer Zappos and China's Haier Group use versions of the team-based structure. With a virtual network structure, the organization subcontracts most of its major functions to separate companies and coordinates their activities from a small headquarters organization. Organizations that use a network structure include Nike, GitLab, and Smart Balance. Each structural approach—functional, divisional, matrix, team, and virtual network—has distinct advantages and disadvantages.
Matrix approach: example
The U.S. operation of Starbucks, for example, has established four geographic divisions: Western/Pacific, Northwest/Mountain, Southeast/Plains, and Northeast/Atlantic. Functional departments, including finance, marketing, and so forth, are centralized and operate as their own vertical units as well as support the horizontal divisions.
Remember This
The chain of command is an unbroken line of authority that links all individuals in the organization and specifies who reports to whom. Authority is the formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve outcomes desired by the organization. Responsibility is the flip side of the authority coin; it refers to the duty to perform the task or activity that one has been assigned. Accountability means that people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command. When managers transfer authority and responsibility to positions below them in the hierarchy, it is called delegation. Managers may have line authority, which refers to the formal power to direct and control immediate subordinates, or staff authority, which refers to the right to advise, counsel, and recommend in the manager's area of expertise. Span of management, sometimes called span of control, refers to the number of employees reporting to a supervisor. A tall structure is characterized by an overall narrow span of management and a relatively large number of hierarchical levels. A flat structure is characterized by an overall broad span of management and relatively few hierarchical levels. The trend is toward broader spans of management and greater decentralization. In a project called "Great Workplace," Walmart is testing structural changes in some of its stores that increase the span of management and decentralize authority to lower-level employees. Decentralization means that decision authority is pushed down to lower organization levels. Centralization means that decision authority is located near top organization levels. Boeing Corporation centralized its safety oversight operations after fatal crashes of two 737 MAX airliners threw the company into a crisis.
Coordination
The managerial task of adjusting and synchronizing the diverse activities among different individuals and departments
span of management
The number of employees reporting to a supervisor; sometimes called span of control.
Staff authority
The right to advise, counsel, and recommend in the manager's area of expertise.
"I am thinking about decentralizing, allowing employees lower in the organization to make more decisions. When does decentralizing usually make sense?" Check all that apply. When activities can be done more efficiently on a larger scale When different areas of the company do not agree on which course of action to take and require coordination When conditions are changing rapidly and it's desirable for employees with the most information about customers to make decisions quickly When allowing employees to develop their decision-making and other strategic skills will be of value
When conditions are changing rapidly and it's desirable for employees with the most information about customers to make decisions quickly When allowing employees to develop their decision-making and other strategic skills will be of value Many organizations find that they are more responsive to customers and more competitive when they decentralize. Decentralization is especially effective when conditions are changing rapidly, because it allows those employees closest to the customer to make decisions, without waiting for information to travel up the chain of command and decisions to come back down. Decentralization also builds capability in the workforce as lower-level employees exercise their decision-making skills. Centralization is needed when different areas of the organization need firm coordination, as when managers disagree about which strategic direction to take. Centralization is also beneficial when certain activities can be performed more efficiently if managed in a unified way for the company, rather than being done in many different ways by different divisions or departments.
Geographic- or Customer-Based Divisions example
When he was CEO of the Walt Disney Company, Bob Iger reorganized the Disney Channel into geographic divisions because what appeals to people in different countries varies. "It's important that Disney's products are presented in ways that are culturally relevant," Iger said about the geographic reorganization. Large nonprofit organizations such as the National Council of YMCAs, Habitat for Humanity International, and the Girl Scouts of the USA also frequently use a type of geographic structure, with a central headquarters and semiautonomous units serving local customers.
Staff departments
include all those that provide specialized skills in support of line departments. Staff departments have an advisory relationship with line departments and typically include marketing, labor relations, research, accounting, and HR.
project manager
is a person who is responsible for coordinating the activities of several departments for the completion of a specific project.
Organizing:
is the deployment of organizational resources to achieve strategic goals. The deployment of resources is reflected in the organization's division of labor into specific departments and jobs, formal lines of authority, and mechanisms for coordinating diverse organization tasks.
