Principles of Agribusiness Management: Chapter 9

What is the best approach?

The best answer is to choose the Organizational Structure that does the most to help the business maximize its long term profits and profitably satisfy their customers

decentralized decision-making

This approach allows decision making authority for routine matters to be delegated to lower level management. This system overcomes all of the disadvantages of the centralized approach. To make it successful, firms need to properly prepare their lower level managers to handle these decisions, and to monitor what is going on. In the beginning, it is more work for the senior managers but can result in greater benefits in the long run. Once junior managers are comfortable with this responsibility it allows senior managers more time to deal with more critical items such as those things that affect the firm's future sales and profits.

Organizing by business function:

This includes purchasing, production, marketing, shipping, and other business functions. It allows firms the advantage of maximum control over most activities.

Another important distinction in organizing is the difference between line and staff activities.

-Line activities: Production, inventory management, distribution, as well as other activities. These activities directly affect the firm's ability to maximize its long run profits by profitably satisfying it s customers' needs. -Staff activities: Legal, HR, research and development, as well as other activities that indirectly support the accomplishment of the firm's purpose and objectives.

Organizational Design's Four Principles

1. Simple organizational structure: Have as few layers of management as possible to get the job done 2. Give critical tasks prominence and allow to function without restriction 3. Maintain minimum support staff: They are not critical tasks and should be kept to the minimum size necessary to do the job. For example, using an outside firm to do payroll. 4. Maintain small working units: Small enough to give its members a sense of accomplishment and just large enough to challenge itself and its manager.

Organizing by product:

All the business functions involved with one product are grouped together. The advantage here is that a product manager has full control of all the business functions that affect his product

Organizing by geographic area

All the sales of all products in location are handled together. This works best when an area has unique characteristics that calls for special coordination.

The approach you select must help the firm efficiently and effectively maximize its long profits by profitably meeting customers needs.

As a result your firm will become the first choice of your customers and employees so it can become the first choice of your investors. This is why the organizing function is so important, and how it contributes the long run success of the firm

Deciding where decisions are made

Decisions made at lowest levels • Effect firm for a short period of time • Involve small amounts of money • Do not effect firm's purpose and objective Decisions made at highest levels • Effect the firm for long period of time • Involve large amounts of money • Dramatically effect firm's purpose and objective

Line activities

Directly affect accomplishment of firm's purpose and objectives (e.g., sales, production)

Organizational Design's Four Principles

First, keep the organization structure simple and have as few levels of management as possible. A simple structure makes its easier for good ideas to flourish. Good managers know that good ideas can originate from anywhere in an organization. Second, make sure that Critical Tasks are given prominence, and that they function without restriction. Third, support staff keep things working smoothly, but they generally do not contribute directly to long run profits. Fourth, keep the working units small so everyone is involved. This way every person can see how what they do directly contributes to the firm's success.

Staff activities

Indirectly support accomplishment firm's purpose and objectives (e.g., human resource, legal)

Each of the activities a firm must do is called a task. The goal of the organizing management function is to determine what all the tasks are, and then organize them so the firm can efficiently and effectively achieve the purpose and objective it defined in the planning function.

Once this is done managers need to look at all those tasks and identify which tasks are most critical to the survival of the firm. These are called Critical Tasks. Critical Tasks must be done well or the business could fail. The accomplishment of Critical Tasks must be given priority over every other task.

Even if you use the decentralized decision-making approach, there are still some decisions that still need to be made by top management. Things that affect the firm for short periods of time, do not involve a great deal of money, and do not affect the firm's purpose and objective should be handled at the lowest levels.

Those items that do affect the firm for long periods of time, involve large amounts of money and affect the firm's purpose and objective should be handled by senior management.

centralized decision-making

Under this approach most decisions are made by senior management. The advantage is that all the decisions are handled by the most experienced managers. The major disadvantages of this system are that it generally does not prepare managers to assume higher level positions, and can take control out of the hands of these closest to a problem.

Ways to Organize

• By business function: such as sales, marketing, production, etc. Firm can gain economies of scale by centralizing basic business functions • By product: such as seed, pesticides, etc. This approach assumes each product faces a unique market situation that requires a different marketing plan and marketing mix • By geographic area: Connecticut, California, etc. This works best when the entire market for the firm's products in a specific area is unique and changes quickly. -Many firms use a mixture of approaches to fit a variety of situations.

Decision making approaches

• Centralized decision making system: all decision making authority held by few top executives • Decentralized decision making system: decision-making authority for routine matters delegated to lower level management

Critical tasks

• These are the activities that must be done well for firm to achieve business purpose and objectives • Must function smoothly and without restriction within organizational structure

Once an agribusiness has developed its plans, it needs to create an organizational structure

• Ways to channel work through the organization • Important step in transforming the business plan into a profitable, operating agribusiness. • Without strong management in this area firms find themselves focused on other things.