Chapter 7-Organizational Structure

frontline managers (manager, group leader, office manager)

Coordinate activities Supervise employees Report to middle managers Involved in day-to-day operations

disadvantages of specialization

Doing the same thing over and over sometimes leads to boredom and may eventually leave employees dissatisfied with their jobs (decreased performance and increased absenteeism and turnover)

how is a unit led in functional organizations

Each unit is headed by an individual with expertise in the unit's particular function

centralization

In organizational structure, where decision making is concentrated at the top of the organizational hierarchy.

centralization advantage

consistency in decision-making.

while frontline managers focus on

day-to-day operations

So what's better—a narrow span of control (with few direct reports) or a wide span of control (with many direct reports)?

depends on a number of factors, including frequency and type of interaction, proximity of subordinates, competence of both supervisor and subordinates, and the nature of the work being supervised

job specialization

dividing tasks into jobs

Depending on the organization and the size of the work units, they may be called

divisions, departments, or just plain groups

Specialization has several advantages

efficiency and jobs that are easier to learn and roles that are clearer to employees

extent of formal system in sustained success and maturity

maturing

extent of formal system in survival and early success phase

minimal to developing

flat

In organizational structure, when an organization has only a few layers of management

organizational chart

A diagram delineating the interrelationships of positions within the organization

customer division (For example, Johnson & Johnson's 200 or so operating companies are grouped into three customer-based business segments: consumer business (personal-care and hygiene products sold to the general public), pharmaceuticals (prescription drugs sold to pharmacies), and professional business (medical devices and diagnostics products used by physicians, optometrists, hospitals, laboratories, and clinics)

A divisional departmentalization based on customer segments

process division

A divisional departmentalization based on distinct stages of the production process.

geographical division

A divisional departmentalization based on geographical location.

product division (general motors-Buick, Cadillac, Chevrolet, and GMC)

A divisional departmentalization based on product lines

Divisional Organizations

A form of departmentalization in which each division contains most of the functional areas (production, marketing, accounting, finance, human resources); in other words, divisions are similar to stand-alone companies, and they function relatively autonomously.

matrix structure

A form of departmentalization that combines elements of functional and divisional structures.

narrow span of control

A span of control with few direct reports.

wide span of control

A span of control with many direct reports.

middle managers (operations managers, division manager, branch manager)

Allocate resources Oversee frontline managers Report to top management Develop and implement activities

disadvantage of functional organization

But homogeneity also has drawbacks: it can hinder communication and decision making between units and even promote interdepartmental conflict

aspect of designing an organizational structure

Identify the activities that need to be performed in order to achieve organizational goals. Break down these activities into tasks that can be performed by individuals or groups of employees.

As a company grows, however, it tends to add more layers between the top and the bottom; that is, it gets taller

In organizational structure, when an organization has many layers of management.

unity of command

Occurs when each employee reports to only one supervisor

Top Managers (CEO, COO, CFO, CIO)

Set objectives Scan environment Plan and make decisions

chain of command

The authority relationships among people working at different levels of the organization

There are trade-offs between the advantages and disadvantages of flat and tall organizations. Companies determine which trade-offs to make according to a principle called span of control

The number of people reporting to a particular manager.

Given the tendency toward flatter organizations and wider spans of control, how do managers handle increased workloads? They must learn how to handle delegation-

The process of entrusting work to subordinates.

advantages of functional organization

The structure is simple to understand and enables the staff to specialize in particular areas

advantage of product division

allows individuals in the division to focus all their efforts on the products produced by their division

common day examples of functional organization

business schools and college majors

Disadvantage of tall structure:

can slow down communication and decision making, causing the organization to become less efficient and productive.

If and when a company expands, it has to decide whether most decisions should still be made by individuals at the top or delegated to lower-level employees. The two options are-

centralization and decentralization

Divisions are similar in many respects to stand-alone companies, except that

certain common tasks, like legal work, tends to be centralized at the headquarters level

The patterns and structures that appear in an organization need to evolve over time as an organization grows or declines, often through four predictable phases:

entrepreneurship phase, survival and early success, sustained success, renewal (or decline)

extent of formal system in renewal (or decline)

extensive

the challenge of divisional organization is to

find the most appropriate way of structuring operations to achieve overall company goals.

newer organizations tend to adapt a

flat structure

two types of organizational structure

functional and divisional organizations

As you move up the pyramid, management positions

get more demanding, but they carry more authority and responsibility (along with more power, prestige, and pay

Departamentalization

grouping jobs into units

Functional Organization

groups together people who have comparable skills and perform similar tasks.

decentralization

in organizational structure, where decision-making is delegated to lower-level employees.

centralization disadvantage

lower-level managers will feel under-utilized and will not develop decision-making skills that would help them become profitable and might also fail to consider information that only front-line employees have or might actually delay the decision-making process.

extent of formal system in entrepreneurship phase

non-existent to minimal

Another thing to notice about a firm's chain of command is the

number of layers between the top managerial position and the lowest managerial level.

survival and early success

occurs as an organization begins to scale up and find continuing success

Once an organization has set its structure, it can represent that structure in an

organizational chart

top managers spend most of their time in

planning and decision making

Divisions can be formed according to

products, customers, processes, or geography.

disadvantage of product division

results in higher costs as corporate support services (such as accounting and human resources) are duplicated in each of the four divisions.

disadvantage of divisional organization

services must be duplicated across units, costs will be higher. In addition, some companies have found that units tend to focus on their own needs and goals at the expense of the organization as a whole.

functional organizations are typical for

small to medium-size companies, which group their people by business functions

Building an organizational structure engages managers in two key activities:

specialization and departmentalization

at the stage of survival and early success, it becomes appropriate to introduce structures that

support the standardization and formalization required to create effective coordination across the organization.

decentralization disadvantage

the divisions of the company might end up competing against each other, to the detriment of the organization as a whole

sustained success or maturity

the organization expands and the hierarchy deepens, now with multiple levels of employees.

entrepreneurship phase

the organization is usually very small and agile, focusing on new products and markets.

Why do companies restructure their organizational structure

to be competitive with their changing conditions

advantage of divisional organization

usually enhances the ability to respond to changes in a firm's environment.

renewal or decline

when an organization expands to the point that its operations are complex and need to operate somewhat autonomously. (might need to restructure)

When you're examining an organization chart, you'll probably want to know

whether each person reports to one or more supervisors: to what extent, in other words, is there unity of command?