chapter 9

sole proprietorship

A company that is owned by one person. From a legal perspective, the company and its owner are considered one and the same. On the plus side, this means that all profits are the property of the owner (after taxes are paid, of course). On the minus side, however, the owner is personally responsible for the company's losses and debts. This presents a tremendous risk. If a sole proprietor is on the losing end of a significant lawsuit, for example, the owner could find his personal assets forfeited. Most sole proprietorships are small and many have no employees. In most towns, for example, there are a number of self-employed repair people, plumbers, and electricians who work alone on home repair jobs. Also, many sole proprietors run their businesses from their homes to avoid expenses associated with operating an office.

organizational chart

A diagram that depicts how companies' structures are built using two basic building blocks: vertical linkages and horizontal linkages. These organizational charts show how companies' structures are built using two basic building blocks: vertical linkages and horizontal linkages

output control

A focus on measurable results within an organization. focuses on measurable results within an organization. Examples from the business world include the number of hits a website receives per day, the number of microwave ovens an assembly line produces per week, and the number of vehicles a car salesman sells per month (Figure 9.6). In each of these cases, executives must decide what level of performance is acceptable, communicate expectations to the relevant employees, track whether performance meets expectations, and then make any needed changes.

behavioral control

A focus on specifying the actions that ultimately lead to results. focuses on controlling the actions that ultimately lead to results. In particular, various rules and procedures are used to standardize or to dictate behavior (Figure 9.7). In most states, for example, signs are posted in restaurant bathrooms reminding employees that they must wash their hands before returning to work. The dress codes that are enforced within many organizations are another example of behavioral control. To try to prevent employee theft, many companies have a rule that requires checks to be signed by two people.

limited liability company

A form of ownership that is granted in state laws wherein owners are not personally responsible for debts that the LLC accumulates (like in a corporation) and the LLC can be run in a flexible manner (like in a partnership). A final form of business is very popular, yet it is not actually recognized by the federal government as a form of business. Instead, the ability to create a limited liability company (LLC)A form of ownership that is granted in state laws wherein owners are not personally responsible for debts that the LLC accumulates (like in a corporation) and the LLC can be run in a flexible manner (like in a partnership). is granted in state laws. LLCs mix attractive features of corporations and partnerships. The owners of an LLC are not personally responsible for debts that the LLC accumulates (like in a corporation) and the LLC can be run in a flexible manner (like in a partnership). When paying federal taxes, however, an LLC must choose to be treated as a corporation, a partnership, or a sole proprietorship. Many home builders (including Sander & Lawrence), architectural businesses, and consulting companies are LLCs.

partnership

A legal form of business wherein two or more partners share ownership of a company. two or more partners share ownership of a company. A partnership is similar to a sole proprietorship in that the partners are the only beneficiaries of the company's profits, but they are also responsible for any losses and debts. Partnerships can be especially attractive if each person's expertise complements the others. For example, an accountant who specializes in preparing individual tax returns and another who has mastered business taxes might choose to join forces to offer customers a more complete set of tax services than either could offer alone.

corporation

A legal form of ownership wherein shares of ownership are publicly traded in stock markets, and management is performed by professional executives. A key difference between a corporationA legal form of ownership wherein shares of ownership are publicly traded in stock markets, and management is performed by professional executives. on the one hand and a sole proprietorship and a partnership on the other is that corporations involve the separation of ownership and management. Corporations sell shares of ownership that are publicly traded in stock markets, and they are managed by professional executives. These executives may own a significant portion of the corporation's stock, but this is not a legal requirement.

division of labor

A process of splitting up a task into a series of smaller tasks, each of which is performed by a specialist. Division of labor is a process of splitting up a task (such as the creation of light bulbs) into a series of smaller tasks, each of which is performed by a specialist.

management by objectives (MBO)

A process wherein managers and employees work together to create goals. is a process wherein managers and employees work together to create goals. These goals guide employees' behaviors and serve as the benchmarks for assessing their performance. Following the presentation of MBO in Peter Drucker's 1954 book The Practice of Management, many executives embraced the process as a cure-all for organizational problems and challenges.

S corporation

A special type of corporation wherein the company's profits and losses are reported on owners' personal tax returns in proportion with each owner's share of the company. A specialized type of corporation called an S corporationA special type of corporation wherein the company's profits and losses are reported on owners' personal tax returns in proportion with each owner's share of the company. avoids double taxation. Much like in a partnership, the company's profits and losses are reported on owners' personal tax returns in proportion with each owner's share of the company. Although this is an attractive feature, an S corporation would be impractical for most large companies because the number of shareholders in an S corporation is capped, usually at one hundred. In contrast, Southwest Airlines has more than ten thousand shareholders. For smaller companies, such as many real estate agencies, the S corporation is an attractive form of business.

organizational control systems

Allow executives to track how well the organization is performing, identify areas of concern, and then take action to address the concerns. allow executives to track how well the organization is performing, identify areas of concern, and then take action to address the concerns. Three basic types of control systems are available to executives: (1) output control, (2) behavioral control, and (3) clan control. Different organizations emphasize different types of control, but most organizations use a mix of all three types.

simple structure

An arrangement that does not rely on formal systems of division of labor, often because one person performs all the tasks that the organization needs to accomplish. In this type of structure, an organizational chart is usually not needed. Simple structures do not rely on formal systems of division of labor (Figure 9.4). If the firm is a sole proprietorship, one person performs all the tasks the organization needs to accomplish. For example, on the TV series The Simpsons, both bar owner Moe Szyslak and the Comic Book Guy are shown handling all aspects of their respective businesses.

matrix structures

An organizational arrangement that relies heavily on cross-functional teams that each work on a different project. In particular, these structures create cross-functional teams that each work on a different project. This offers several benefits: maximizing the organization's flexibility, enhancing communication across functional lines, and creating a spirit of teamwork and collaboration. A matrix structure can also help develop new managers. In particular, a person without managerial experience can be put in charge of a relatively small project as a test to see whether the person has a talent for leading others.

multidivisional structure

An organizational arrangement whereby employees are divided into departments that each handle activities related to an area of the business, such as marketing, production, human resources, information technology, and customer service. Many organizations offer a wide variety of products and services. Some of these organizations sell their offerings across an array of geographic regions. These approaches require companies to be very responsive to customers' needs. Yet, as noted, functional structures tend to be fairly slow to change. As a result, many companies abandon the use of a functional structure as their offerings expand. Often the new choice is a multidivisional structureAn organizational arrangement whereby employees are divided into departments based on product areas and/or geographic regions..

functional structure

An organizational arrangement whereby employees are divided into departments that each handle activities related to an area of the business, such as marketing, production, human resources, information technology, and customer service. An organizational arrangement whereby employees are divided into departments that each handle activities related to an area of the business, such as marketing, production, human resources, information technology, and customer service.

sensitivity-training groups (or t-groups)

Groups of people who meet to discuss emotions, feelings, beliefs, and biases about workplace issues to gain greater understanding of themselves and others. hat were used in many organizations in the 1960s. This fad involved gatherings of approximately eight to fifteen people openly discussing their emotions, feelings, beliefs, and biases about workplace issues. In stark contrast to the rigid nature of MBO, the T-group involved free-flowing conversations led by a facilitator. These discussions were thought to lead individuals to greater understanding of themselves and others. The anticipated results were more enlightened workers and a greater spirit of teamwork.

organizational structure

How tasks are assigned and grouped together with formal reporting relationships. Which is defined as how tasks are assigned and grouped together with formal reporting relationships. Creating a structure that effectively coordinates a company's activities increases the company's likelihood of success. Meanwhile, a structure that does not match well with a company's needs undermines the company's chances of prosperity.

horizontal linkages

Relationships between equals in an organization. Often these linkages are called committees, task forces, or teams. Horizontal linkages are important when close coordination is needed across different segments of an organization. For example, most business schools revise their undergraduate curriculum every five or so years to ensure that students are receiving an education that matches the needs of current business conditions.

clan control

Relying on shared traditions, expectations, values, and norms to lead people to work toward the good of their organization. is an informal type of control. Specifically, clan control relies on shared traditions, expectations, values, and norms to lead people to work toward the good of their organization (Figure 9.8). Clan control is often used heavily in settings where creativity is vital, such as many high-tech businesses. In these companies, output is tough to dictate, and many rules are not appropriate. The creativity of a research scientist would be likely to be stifled, for example, if she were given a quota of patents that she must meet each year (output control) or if a strict dress code were enforced (behavioral control).

unity of command

The principle that each person within an organization should only report directly to one supervisor. This principle states that each person should only report directly to one supervisor. If employees have multiple bosses, they may receive conflicting guidance about how to do their jobs. The unity of command principle helps organizations to avoid such confusion.

vertical linkages

Tie supervisors and subordinates together. These linkages show the lines of responsibility through which a supervisor delegates authority to subordinates, oversees their activities, evaluates their performance, and guides them toward improvement when necessary. Every supervisor except for the person at the very top of the organizational chart also serves as a subordinate to someone else. In the typical business school, for example, a department chair supervises a set of professors. The department chair in turn is a subordinate of the dean.

informal linkages

Unofficial relationships such as personal friendships, rivalries, and politics. refer to unofficial relationships such as personal friendships, rivalries, and politics. In the long-running comedy series The Simpsons, Homer Simpson is a low-level—and very low-performing—employee at a nuclear power plant. In one episode, Homer gains power and influence with the plant's owner, Montgomery Burns, which far exceeds Homer's meager position in the organizational chart, because Mr. Burns desperately wants to be a member of the bowling team that Homer captains. Homer tries to use his newfound influence for his own personal gain, and naturally the organization as a whole suffers. Informal linkages such as this one do not appear in organizational charts, but they nevertheless can have (and often do have) a significant influence on how companies operate.

organizational culture

Values and norms embraced by an organization that determine how people interact with other organizational members as well as external stakeholders. that was all the rage in the 1980s. This fad was fueled by a best-selling 1982 book titled In Search of Excellence: Lessons from America's Best-Run Companies. Authors Tom Peters and Robert Waterman studied companies that they viewed as stellar performers and distilled eight similarities that were shared across the companies. Most of the similarities, including staying "close to the customer" and "productivity through people," arose from powerful corporate cultures. The book quickly became an international sensation; more than three million copies were sold in the first four years after its publication.

boundaryless organization

When the usual barriers between parts of the organization as well as barriers between the organization and others are removed. A boundaryless organization is one that removes the usual barriers between parts of the organization as well as barriers between the organization and others. Eliminating all internal and external barriers is not possible, of course, but making progress toward being boundaryless can help an organization become more flexible and responsive. One example is W. L. Gore, a maker of fabrics, medical implants, industrial sealants, filtration systems, and consumer products. This company avoids organizational charts, management layers, and supervisors despite having approximately nine thousand employees across thirty countries. Rather than granting formal titles to certain people, leaders with W. L. Gore emerge based on performance and they attract followers to their ideas over time.

quality circle

is a formal group of employees that meets regularly to brainstorm solutions to organizational problems. As the name "quality circle" suggests, identifying behaviors that would improve the quality of products and the operations management processes that create the products was the formal charge of many quality circles.