MGMT 3001: Chapter 7
Authority Characteristic 1
1. 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
Organization Structure
1. The set of formal tasks assigned to individuals and departments 2. Formal reporting relationships Including: Lines of authority, decision responsibility, # of hierarchical levels, and span of managers control 3. The design of systems to ensure effective coordination of employees across departments
Authority Characteristic 2
2. 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
When work specialization is extensive
Employees specialize in a single task -Jobs tend to be small, but they can be performed efficiently
A Tall Structure:
Has an overall narrow span and more hierarchical levels
Vertical Functional Approach 7-2a
In a FUNCTIONAL STRUCTURE: also called a "U-form" (unitary structure), activities are grouped together by common function from the bottom to the top of the organization -The functional structure groups positions into departments based on similar skills, expertise, work activities, and resource use -A functional structure can be thought of as departmentalization by organizational resources because each type of functional activity - accounting, human resources, engineering, and manufacturing - represents specific resources for performing the organizations task -People, facilities, and other resources represent a common function are grouped into a single department
Organizing
Is the deployment resources to implement decisions and achieve goals -Achieve strategic goals
Organizing is a structuring activity that
Managers undertake to harness resources for accomplishing things
Centralization
Means that decision authority is located near the top of the organization
Line Authority
Means that the people in management positions have formal authority to direct and control immediate subordinates
WITHOUT Effective coordination systems:
No structure is complete
The multilevel set of managers shown in an International Metals Company: Reorganized
OLD TALL STRUCTURE: President on Top Under: 1. Executive VP, 2. Executive VP, 3. Executive VP, 4. VP Under 1: 9 Staff Specialists Under 2: 3 Operating Managers, 3 Staff Specialists Under 3: 4 Operating Managers, 5 Staff Specialists Under 4: 10 Operating Managers, 5 Staff Specialists NEW FLAT STRUCTURE President on Top (2 Branches Below) Right Side: 10 Operating Managers Left Side: 9 Staff Specialists (The CEO welcomed his wide span of 19 management subordinates, because it fit his style, his management team was top quality and needed little supervision, and they were all located on the same floor of an office building)
Organizing is important because it follows strategy
Strategy: Defines WHAT to do; organizing defines HOW to do it
CHART Hierarchy
TOP: President (4 under: VP of accounting, Director of Human resources, VP of production, Director Marketing) Under: VP OF ACCOUNTING -Info center -Financial Analyst -Chief accountant UNDER: -Accounts Payable -Payroll Clerk Under: DIRECTOR OF HUMAN RESOURCES -Benefits Administrator -Industrial Relations Manager Under: VP OF PRODUCTION -Maintenance Supervisor -Quality control Manager -Bottling Plant Super-Intendent UNDER: -Bottling supervisors Under: DIRECTOR MARKETING -Mountain Region Sales -Midstate Sales -Western Sales
The average span of control used in an organization determines whether the structure is:
Tall or flat
5 approaches to structural design reflect different uses of the chain of command in departmentalization
The functional, divisional, and matrix are TRADITIONAL approaches that rely on the chain of command to define departmental groupings and reporting relationships among the hierarchy
The second fundamental function of management
The necessity and pertinence of organizing
Sample Organization Chart for a Water Bottling plant
The plant has 4 major departments: 1. Accounting 2. Human Resources 3. Production 4. Marketing
Generally: When supervisors must be closely involved with subordinates:
The span should be small, and when supervisors need little involvement with subordinates, it can be large
At the same time, the types of positions in the top team are shifting,
With the position of Chief Operating Officer (COO) declining and positions such as CIO or Chief Marketing Officer being added to the top team
Despite the apparent advantages of specialization, many organizations are moving away from this principle
With too much specialization, employees are isolated, and do only a single, boring job -In addition, too much specialization creates separation and hinders the coordination that is essential for organizations to be effective *Many companies are implementing teams and other mechanisms that enhance coordination and provide greater challenges for employees
However, not every organization should decentralize all decisions
Within many companies, there is often a "tug of war between centralization and decentralization" As top executives want to centralize some operations to eliminate duplication, while business division mangers want to maintain centralized control Managers should diagnose the organizational situation, and select the decision-making level that will best meet the organizations needs
Strategy
a plan of action or policy designed to achieve a major or overall aim.
Functional Approach: How it works -Each of the fundamental departments is concerned with the organization as a whole
refer to exhibit 7-1 The major departments under the president are groupings of similar expertise and resources, such as accounting, HR, production, and marketing -Each of the fundamental departments is concerned with the organization as a whole -The marketing department is responsible for all sales and marketing, for example, and the accounting department handles financial issues for the entire company
The organization Chart:
1. Delineates (describes) the chain of command 2. Indicates departmental tasks and how they fit together 3. Provides order and logic for the organization *Every employee has an appointed task, line of authority, and decision responsibility
Stanley McChrystal, former commander of US and NATO forces in Afghanistan once said
"I learned, that any complex task is best approached by flattening hierarchies. It gets everybody feeling like their in the inner circle, so that they develop a sense of ownership" Nearly a decade of a fighting complex, decentralized enemy has pushed the US armed forces to decentralize as well The US army recently implemented its Starfish program to train leaders to think, act, and operate in a DECENTRALIZED fashion
Work Specialization (division of labor)
*A fundamental principle is that work can be performed more efficiently if employees are allowed to specialize
REMEMBER THIS
1. Managers in every organization face the question about how to organize the maximum efficiency and effectiveness 2.Organizing: Refers to the deployment of organizational resources to achieve strategic goals -Sony created a new position of chief information security officer (CISO) after hackers accessed customer data on the company's computer network 3. Organization Structure: is defined as the framework in which the organization defines how tasks are divided, resources are deployed, and departments are coordinated 4.Organization Chart: Is the visual representation of an organizations structure 5.Fundamental characteristics of vertical organization structure includes work specialization, chain of command, span of management, and centralization, and decentralization 6. Work specialization: Sometimes called division of labor, is the degree to which organizational tasks are subdivided into individual jobs
Chain of Command: Two underlying principles
1. Unity of Command: means that each employee is held accountable to only one supervisor 2. Scalar Principle: Refers to a clearly defined line of authority in the organization that includes all employees
Factors that are associated with less supervisor involvement and thus larger spans of control
1. Work performed by subordinates is stable and routine 2. Subordinates perform similar work tasks 3. Subordinates are concentrated in a single location 4. Subordinates are highly trained, and need little direction in performing tasks 5. Rules and procedures defining task activities are available 6. Support systems and personnel are available for the manager 7. Little time is required in nonsupervisory activities, such as coordination with other departments or planning 8. Managers personal preferences and styles favor a large span
Authority Characteristic 3
3. Authority is accepted by subordinates Although authority flows from the top down, subordinates comply because they believe that managers have a legitimate right to issue orders
A global geographic structure is in 7.5 In a geographic based structure
All functions in a specific county or region report to the same division manager -The structure focuses on company activities on local market conditions -Competitive advantage may come from the production or sale of a product or service adapted to a given country or region
The characteristics of vertical structure:
Are portrayed in the ORGANIZATION CHART: which is the visual representation of an organizations structure
The acceptance Theory Of Authority: Part of characteristic 3
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
Example: Apple for Accountability
At Apple, the late Steve Jobs instituted an accountability mindset throughout the organization The term: "DRI" meaning "directly responsible individual", typically appears on meeting agendas and so forth, so that everyone knows who is responsible for what
Staff Authority: BP Was confusion in the line of authority as to who had the OK to push the emergency shutdown -One woman issued a May Day distress signal over the radio when she realized no one else had done so - got in trouble for "over stepping her line of authority"
Bp's new safety department, created in the wake of the 2010 BP-Transocean Deepwater Horizon oil rig explosion in the Gulf of Mexico that killed 11 crew members and set off an environmental disaster, advices managers in line departments regarding risk management, agreements with contractors, and other safety related issues -Safety staff specialists are embedded throughout the company, including on the exploration projects, and in refineries -Unlike many staff specialists, BP's safety unit has broad power to challenge line managers decisions if it considers them too risky*
Divisional Advantage and Disadvantage
By dividing employees and resources along divisional lines, the organization will be flexible and responsive to change because each unit is small and tuned into its environment
Delegating decision making to Lower-Level Managers and Employees
Can be highly motivating and improve speed, flexibility, and creativity -However: Managers find delegation difficult* When manager's can't delegate, they undermine the role of their subordinates and prevent people from doing their jobs effectively
In the US and Canada, the trend over the past 30 years has been toward greater decentralization of organizations
Decentralization is believed to relieve the burden on top managers, make greater use of employee skills and abilities, ensure that decisions are made close to the action by well-informed people, and permit more rapid response to external changes
Decentralization
Decision authority is pushed downward to lower organization levels
Delegation (related to authority)
Delegation: is the process managers use to transfer authority and responsibility to positions below them in the hierarchy Most organizations today encourage managers to delegate authority to the lowest possible level to provide maximum flexibility to meet customer needs and adapt to shifts in the environment
Another fundamental characteristic of organization structure is DEPARTMENTALIZATION
Departmentalization: Is the basis for grouping positions into departments and departments into the total organization -Managers make choices about how to use the chain of command to group people together to perform their work
In a Divisional Structure:
Divisions are created as self-contained units, which separate functional departments for each division For example: In 7.4 each functional department resource needed to produce the product is assigned to each division -Separate R&D departments are created within each division -Each department is smaller and focuses on a single product line or customer segment -Departments are duplicated across the product lines
The Divisional Structure is also sometimes called a "Product Structure, Program Structure, or Self-Contained Unit Structure"
Each of these terms means essentially the same thing: Diverse departments are brought together to produce a single organizational output, whether it is a product, a program, or service to a single customer
Organizations may have to experiment to find the correct hierarchical level at which to make decisions
Example: Most large school systems are highly CENTRALIZED -However, a study by William Ouchi found that 3 large urban school systems that shifted to a decentralized structure, giving school principles and teachers more control over staffing, and teaching methods, and materials, performed better, and more efficiently than centralized systems of similar size
Factor that typically influence centralization versus decentralization: 1 Greater change and uncertainty in the environment are usually associated with decentralization
Greater change and uncertainty in the environment are usually associated with decentralization A good example of how decentralization can help cope with rapid change and uncertainty occurred following Hurricane Katrina -Mississippi Power restored power in just 12 days, thanks largely to a decentralized management system that empowered people at the electrical substations to make rapid, "on the spot decisions" -The lightening quick pace of change in the digital world requires more decentralization, which suits Ben Stiller just fine, as described in this chapters Benchmarking Box
Traditional views of organization design
Recommend a span of management of about 7 to 10 subordinates per manager -However, many lean organizations today have spans of management as high as thirty, forty, and even higher Example: At PepsiCo, Inc's, Gamesa cookie operation in Mexico, for instance, employees are trained to keep production moving slowly and are rewarded for quality, teamwork, and productivity -Teams are so productive and efficient that Gamesa factories operate with around 56 subordinates per manager -Research over the past 40 or so years shows that span of management varies widely and that several factors influence the span
The Functional Structure: The Primary disadvantages
Reflect barriers that exist across departments -Because people are separated into distinct departments, communication, and coordination across functions are also poor, causing a slow response to environmental changes -Innovation and change require involvement of several departments -Another problem is that decisions involving more than one department may pile up at the top of the organization and be delayed
In the bottling services chart:
Separation of production tasks into bottling, quality control, and maintenance -Employees within each department perform only the tasks relevant to their specialized function
Meetup.com Rapid Expansion
Top executives implemented a command and control structure as a way to regulate and monitor performance -The company even has a "review board" that worked with managers to oversee what employees could and could not do TROUBLE: "The productivity went through the floor" -says chief technology officer Greg Whalin -One day, a senior manager pulled CEO Scott Heiferman into a conference room and showed him a list of complaints Example: "We aren't a creative company, and I hate the organization Chart"
Delegation: Meetup.com example
Top managers at Meetup.com revived the company by pushing authority and responsibility down to the front lines meetup.com is the company known for organizing Howard Dean's presidential campaign in 2004 -As an organization that helps other people create organizations, Meetup has been instrumental in setting up local groups for everything from: Protests to gardening clubs
Manager's Responsibility
Typically managers are assigned authority commensurate (corresponding in size or degree; in proportion) with responsibility -When managers have responsibility for task outcomes, but little authority, the job is possible but difficult -They rely on persuasion and luck *When managers have authority exceeding responsibility, they become tyrants, using authority to achieve frivolous outcomes
The set of formal tasks and formal reporting relationships provides a framework for:
Vertical control of the organization
Example of: The Divisional Structure Large Corporations Walmart
Walmart uses divisions for Walmart stores, Sam's Club (US), and International stores -Each of these large divisions is further subdivided into smaller geographical divisions to better serve customers in different regions
Work Specialization is readily visible on an automotive assembly line:
Where each employee performs the same task over and over again **It would not be efficient to have a single employee build the entire automobile, or even perform a large # of unrelated jobs***
Subordinates
a person under the authority or control of another within an organization.
In a Functional Structure:
all R&D engineers are grouped together and work on all products
Walt Disney Company CEO Bob Iger: Reorganized the Disney Channel into geographic devisions
He did this because what appeals to people in different countries varies -Studio executives in Burbank California were miffed at the reorganization, but it has paid off -Iger learned that the number one program on Italy's Disney Channel was one that he had never heard of "I1 Mondo di Patty" an inexpensive, telenova style show about an Argentine girl "It's important that Disney's products are presented in ways that are culturally relevant" Iger said about the geographic reorganization Large non profit 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 geographical structure, with a central headquarters and semiautonomous local units
Functional and Divisional structures: Geographic or Customer Based Divisions
An alternative for assigning divisional responsibility is to group company activities by geographic region or customer groups For Example: The International Revenue Service (IRS) shifted to a structure focused on 4 distinct taxpayer (customer) groups 1. Individuals 2. Small Businesses 3. Corporations 4. Non Profit or Government Agencies
Line and Staff Authority
An important distinction in many organizations is between line authority and staff authority, reflecting whether managers work in line or staff departments in the organizations structure
Chain of Command Authority
Authority and responsibility for different tasks should be distinct. -All individuals in the organization should know to whom they report as well as the successive management levels all the way to the top
Many corporations have created a new position for chief diversity officer
Because of the importance today of creating an environment where minorities and women and flourish
Benchmarking Box: Ben Stiller/ Red Hour Digital What's unusual about Red Hour Digital: Is that it began in 2009 when YouTube was was strictly for amateurs and filmmaker wannabes according to the people of Hollywood. *Because of this forward thinking, Stiller is a leader, and has integrated the new medium into his other work "Digital is now a pillar of what Ben Still does"
Ben Stiller was at a meeting in 2009 to try and get him involved in social media with Facebook and Twitter immediately -Digital strategist Natalie Bruss was trying to show Stiller the benefits of social media when someone else in the room kept asking "I don't understand who are they buyers? Who are the buyers?" In the almost 4 years since his first tweet, Stiller had 4 million followers, plus his production company's Red Hour Digital that is producing a Web Parody of The Bachelor called "Burning Love", which became a hit for Yahoo and was picked up on E! for a whole year -Red Hour Digital also produced Stiller, and Meara, the living room of Stiller's Parents, who reprised their old act from the 60s and 70s and was so well received that it ran on Yahoo, and late Hulu
Example of Functional Approach: Blue Bell Creameries
Blue Bell Creameries, which relies on in-depth expertise in its various functional departments to produce high-quality ice cream for a limited regional market The quality control department for example, tests all incoming ingredients and ensures that only the best go into Blue Bells Ice cream -Quality inspectors also test outgoing products, and, because of their years of experience, can detect the slightest deviation from expected quality -Blue Bell also has functional departments such as sales, production, maintenance, distribution, research and development, and finance
Centralization and Decentralization: Government Leaders in Great Britain
Hope the same thing as the schooling example will happen when they DECENTRALIZE the country's National Health Service (NHS) The system is undergoing the most radical restructuring since it was founded in 1948, with a key part of the plan to shift control of the multibillion annual health care budget to doctors at the local level **Leaders believe decentralization will cut costs, simplify and streamline procedures, and reduce inefficiency by "putting power in the hands of patients and clinicians"
REMEMBER THIS
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 DELEGATION: When mangers transfer authority and responsibility to positions below them in the heirarchy LINE AUTHORITY: Which refers to the formal power to direct and control immediate subordinates STAFF AUTHORITY: Which refers to the right to advise, counsel, and recommend in the managers area of expertise SPAN OF MANAGEMENT: Sometimes called "Span of Control" refers to the number of employees reporting to a supervisor TALL STRUCTURE: Is characterized by an overall narrow span of management and a relatively large number of hieratchial levels FLAT STRUCTURE: Is characterized by an overall broad span of management and relatively few hierarchial levels THE TREND: Is toward broader spans of management and greater decentralization DECENTRALIZATION: Means that decision authority is pushed down to lower organization levels CENTRALIZATION: Means that decision authority is located near top organization levels
Centralization and Decentralization
Centralization and Decentralization pertain to the hierarchical level at which decisions are made
What CEO for Meetup.com Decided to do after complaints
Decided to go in the opposite direction and push authority and responsibility down to his employees -Now, Meetups employees have almost total freedom to select the projects they work on and how and when they accomplish them -With the authority and responsibility for setting priorities, and making decisions, employee creativity soared -In addition, many people began working harder than ever before "We got more done in 6 weeks than in 6 months last year" - Heiferman
The Functional Structure: Functional Advantages and Disadvantages
Grouping employees by common task permits economies of scale and efficient resource use For Example: At American Airlines, all information technology people work in the same large department -They have the expertise and skills to handle almost any issue related to information technology for the organization Large, functionally based departments enhance the development of in-depth skills because people work on a variety of related problems and are associated with other experts within their own department -Because the chain of command converges at the top, the functional structure also offers a way to centralize decision making and provide unified direction from top managers
A Flat Structure:
Has a wide span, is horizontally dispersed, and has fewer hierarchical levels
The Functional Structure is a strong VERTICAL Design
Information flows up and down the vertical hierarchy, and the chain of command converges at the top of the organization -In a functional structure, people within a department communicate primarily with others in the same department to coordinate work and accomplish tasks or implement decisions that are passed down the hierarchy Managers and employees are compatible because of similar training and expertise -Typically, rules and procedures govern the duties and responsibilities of each employee, and employees at a lower hierarchal levels accept the right of those higher in the hierarchy to make decisions and issue orders
Having too many hierarchical levels and narrow spans of control is a common structural problem for organizations
In a survey conducted for the The Conference Board, 72% of managers surveyed said they believed their organizations had too many levels of management -The result may be that routine decisions are made too high in the organization, which pulls higher-level executives away from important, long-range strategic issues and limits the creativity, innovativeness, and accountability of lower-level managers
7-2b Divisional Approach Also called an M-Form (multidivisional) or a Decentralized form
In contrast to the functional approach, in which people are grouped by common skills and resources, the DIVISIONAL STRUCTURE: Occurs when departments are grouped together based on similar organizational outputs With a divisional structure, also called an M-Form (multidivisional) or a decentralized form- Separate divisions can be organized with responsibility for individual products, services, product groups, major projects, or programs, divisions, businesses, or profit centers
Factor that typically influence centralization versus decentralization: 3 In times of crisis or risk of company failure, authority may be centralized at the top
In times of crisis or risk of company failure, authority may be centralized at the top When Honda could not get agreement among divisions about new car models, President Nobuhiko Kawamoto made the decision himself
Staff Departments (provide specialized skills in support of line departments)
Include all of those that provide specialized skills in support of line departments -Staff departments have an advisory relationship with the line departments and typically include marketing, labor relations, research, accounting, and human resources
Structure
Is a powerful tool for reaching strategic goals, and a strategy's success often is determined by its fit with organizational structure
Chain of Command (Authority Structure)
Is an unbroken line of authority that links all employees in an organization and shows who reports to whom "The chain of command illustrates the authority structure of the organization"
Staff Authority -Communication relationship
Is narrower and includes the right to advise, recommend, and counsel in the staff specialists area of expertise -Staff authority is a Communication relationship: staff specialists advise managers in technical areas Example: The finance department of a manufacturing firm would have staff authority to coordinate with line departments about which accounting forms to use to facilitate equipment purchases and standardize payroll services
The deployment of resources
Is reflected in the organizations division of labor into specific departments and jobs -formal lines of authority -and mechanisms for coordinating diverse organization tasks
The Primary DIFFERENCE between Divisional and Functional structures
Is that in a DIVISIONAL structure, the chain of command from each function converges lower in the hierarchy -In a divisional structure, differences of opinion among R&D marketing, manufacturing, and finance would be resolved at the divisional level rather than by the president Thus, DIVISIONAL STRUCTURE ENCOURAGES DECENTRALIZATION. Decision making is pushed down at least one level in the hierarchy, freeing the president and other top managers for strategic planning
Responsibility
Is the duty to perform the task or activity as assigned
Authority Distinguished by 3 characteristics
Is the formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve organizationally desired outcomes
Accountability Definition
Is the mechanism through which authority and responsibility are brought into alignment
Span of Management "Span of control"
Is the number of employees reporting to a supervisor "span of control" This characteristic of structure determines how closely a supervisor can monitor subordinates
The basic difference between structures
Is the way in which employees are departmentalized and to whom they report
Why organizing is important
It follows the management function of planning. Whereas planning defines what to do, organizing defines how to do it
Accountability means:
That the people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command For organizations to function well: Everyone needs to know what they are accountable for and accept the responsibility and authority for performing it
When organizations face new strategic issues:
Managers often create new positions or departments to deal with them example: Sony Created a new position: Chief information security officer (CISO)
The Divisional Structure Large Corporations
Most large corporations have separate divisions that perform different tasks, use different technologies, or serve different customers -When a huge organization produces products for different markets, the divisional structure works because each division is an autonomous business
The trend in recent years has been toward wider spans of control as a way to facilitate delegation
One recent study found that the span of management for CEO's has doubled over the past two decades, rising from about 5 to around 10 managers reporting directly to the top executive, with the span of management for those managers also increasing
Line departments (organizations primary goal and mission)
Perform tasks that reflect the organizations primary goal and mission EX. In a Software company, line departments make and sell the product EX. In an internet based company, line departments would be those that develop and manage online offerings and sales
Example: Chain of Command Authority: Sony
Sony: The new CISO reports to the chief information officer, who reports to the chief transformation officer, who in turn reports to the CEO
Factor that typically influence centralization versus decentralization: 2 The amount of centralization or decentralization should fit in the firm's strategy
The amount of centralization or decentralization should fit in the firm's strategy Top executives at the Walt Disney Company adopt a decentralization approach when they buy small creative companies such as Pixar Animation Studios and Marvel Entertainment -Disney CEO Bob Iger believes in allowing the managers of these companies to run the organization as they see fit -Decentralization fits with the strategy of allowing creative units to respond quickly and innovatively to changes in the entertainment industry TAKING THE OPPOSITE APPROACH: To compete better with Kohl's and Macy's managers at JCPenny centralized product planning and buying operations enabling the company to get more fashionable merchandise to stores quickly and at lower prices
Work Specialization Definition
The degree to which organizational tasks are subdivided into separate jobs
2 INNOVATIVE APPRAOCHES
The use of teams and virtual networks: Innovative -Which have emerged to meet changing organizational needs in a turbulent global environment
Chief Information Officer (CIO)
Was practically unheard of until a decade ago -But almost every government agency, non-profit organization, and business firm has a CIO today - President Obama appointed Vivek Kundra as the first CIO of the U.S. Government
