CHAPTER 10 - BUSINESS MANAGEMENT 109 - Designing Organizational Structure
organization structure
(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) (3) the DESIGN OF SYSTEMS TO ENSURE EFFECTIVE COORDINATION of employees across departments
Geographic or Customer-based divisions
- group activities by GEOGRAPHY OR CUSTOMER - focuses company activities on LOCAL MARKET CONDITIONS - competitive advantage comes from selling a product adapted to a given country (e.g. selling compact cars to a European division and SUVs to U.S. division).
functional structure (aka U-form or Unitary Structure)
- the grouping of activities by common function from the bottom to the top of the organization. - positions are grouped into departments based on similar skills, expertise, work activities, and resource use.
What are the 2 underlying principles of chain of command?
1. UNITY OF COMMAND, which means that each employee is held accountable to only one supervisor. 2. SCALAR PRINCIPLE, which refers to a clearly defined line of authority in the organization that includes all employees.
When less supervision is needed, there can be larger spans of control (more subordinates reporting to a manager). This works when these factors are present.
1. Work is stable and routine 2. Subordinates perform similar work 3. Subordinates are in one location 4. Subordinates are highly trained and require little direction 5. Rules and procedures are defined 6. Support systems and personnel are available 7. Few nonsupervisory or planning activities 8. Manager prefers a large span
Rules of authority
1. authority is vested in organizational positions, not people 2. authority flows down the vertical hierarchy and positions at the top have more formal authority. 3. authority is accepted by subordinates
factors that influence centralization vs. decentralization
1. change and uncertainty in the environment are associated with decentralization. (Hurricane Katrina) 2. pick what fits the firm's strategy 3. crisis requires centralization (e.g. Chipotle now has centralized purchase and production of some for items to maintain stronger safety goals)
The 5 Approaches to Structural Design (Study all Exhibits in 10.3)
1. functional structure (traditional) 2. divisional structure (traditional) 3. matrix structure (traditional) 4. team structure (innovative) 5. virtual network structure (innovative)
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 numbering __________________________________.
30, 40 and even higher
collaboration
A joint effort between people from two or more departments to produce outcomes that meet a common goal or shared purpose and that are typically greater than what could be achieved working along. For example, raiding Osama bin Laden's compound required collaboration between the CIA and the U.S. military forces. Another example is Microsoft eliminating 8 divisions and converting to 4 units that collaborate.
What are the advantages and disadvantages of the TEAM structure?
ADVANTAGES - Reduced barriers among departments; increased compromise - shorter response time; quicker decisions - better moral; enthusiasm from employee involvement DISADVANTAGES - dual loyalties and conflict - time and resources spent on meetings - unplanned decentralization
What are the advantages and disadvantages of a VIRTUAL NETWORK structure?
ADVANTAGES - can draw on expertise worldwide -highly flexible and responsive -reduced overhead costs DISADVANTAGES - lack of hands-on control; weak boundaries - greater demands on managers -weaker employee loyalty
What are the advantages and disadvantages of a FUNCTIONAL structure?
ADVANTAGES - efficient use of resources, economies of scale - in depth skill specialization and development - top manager direction and control DISADVANTAGES - poor communication across functional departments - slow response to internal changes; lagging innovation - decisions concentrated at the top of hierarchy, creating delay
What are the advantages and disadvantages of a DIVISIONAL structure?
ADVANTAGES - fast response, flexibility in an unstable environment - fosters concern for customer needs - excellent coordination across functional departments DISADVANTAGES - duplication of resources across divisions -less technical depth and specialization -poor coordination across divisions
What are the advantages and disadvantages of a MATRIX structure?
ADVANTAGES - more efficient use of resources than a single hierarchy - flexibility, adaptability to changing environment - interdisciplinary cooperation; expertise available in all divisions DISADVANTAGES - Frustration and confusion from a dual chain of command -high conflict between two sides of the matrix -many meetings; more discussions than actions
Organizations such as Simon & Schuster, Starbucks, and the City of New York have created ___________________ positions to meet changing needs.
CDO (Chief Digital Officer)
matrix approach
COMBINES BOTH FUNCTIONAL AND DIVISIONAL APPROACHES SIMULTANEOUSLY, in the same part of the organization, and improves coordination and information
centralization
DECISION AUTHORITY is located near the TOP of the organization
decentralization
DECISION AUTHORITY is pushed downward to LOWER organization levels
mechanistic organization
EFFICIENCY is the goal in a stable environment
relational coordination
HIGHEST LEVEL OF HORIZONTAL COORDINATION involving frequent, timely, problem solving communication carried out through [employee] relationships of shared goals, shared knowledge, and mutual respect. They physically work close together and meet in huddle rooms to increase collaboration.
STRATEGY defines WHAT to do, and ORGANIZING defines _______________ to do it.
HOW
organic organizations
INNOVATION is the goal in a rapidly changing environment
Woodward's Manufacturing Technology Categories
Joan Woodward, a British industrial sociologist, found that manufacturing firms could be categorized according to 3 basic types of production technology: 1. small batch production 2. mass production 3. continuous process production
line authority
Managers have the formal power to direct and control immediate subordinates who work in line departments where products are made and sold.
line departments
PERFORM TASKS that reflect the organization's primary goal and mission (i.e., they make and sell the products)
Re-engineering
RADICAL REDESIGN of business processes to achieve dramatic improvements
Evolution of Organizational Structures (** Study Exhibit 10.11)
Traditional Vertical Structure --> Cross-Functional Teams and Project Managers --> Re-engineering to Horizontal Teams
accepted theory of authority
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. For example, suppose your manager asks you to plan a surprise birthday party for his wife. That would be outside of a subordinate's zone of acceptance.
task force
a temporary team or committee formed to solve a problem involving several departments
chain of command
an unbroken line of authority that links all individuals in the organization and specifies who reports to whom
Why is the division of labor approach losing popularity?
because too much specialization leads to employee isolation and boredom
service technology
characterized by intangible outputs and direct contact between employees and customers (e.g. banks, hotels, law firms, airlines, hotels, amusement parks)
cross-functional teams
consist of employees from various functional departments who are responsible to meet as a team and resolve mutual problems (E.G. medical teams, Total Attorneys)
The trend today is toward broader spans of management and greater _________________________________.
decentralization
Reducing management levels is often a part of efforts to increase _________________________________________.
decision making speed and efficiency
technical complexity (Study Exhibit 10.15)
degree to which machinery is used in production without people
divisional structure (aka M-form or multi-divisional or decentralized form)
diverse departments are grouped together to produce a single organizational output, whether it's a product, a program, or a service to a customer (e.g. different divisions of a car company - trucks vs. cars)
two-boss employees (part of the Matrix Approach)
employees who report to two supervisors simultaneously and must resolve conflicting demands from the matrix bosses
continuous process production
entire work flow is mechanized and runs without stopping and no human operations are involved because machinery does all the work (e.g chemical plants, petroleum refineries)
Outsourcing (part of the virtual network approach)
farming out certain activities, such as manufacturing or credit processing
Small-batch production
firms produce goods in batches of one or a few products DESIGNED TO CUSTOMER SPECIFICATIONS (e.g. custom clothing, special-order machine tools, space capsules, satellites, and submarines).
The Disney Channel is structured into __________________________ divisions to better address the interests of children and teens in different parts of the world.
geographic
permanent teams
groups of employees who are organized in a way similar to a formal department
Business performance is influenced by what?
how well structure is aligned with strategy and needs of the environment
Why is organizing important?
it follows from strategy
What makes the matrix approach unique? (Study exhibit 10.6)
it has DUAL lines of authority, meaning some employees report to two supervisors simultaneously
Generally speaking, when supervisors must be closely involved with subordinates, the span should be small, and when supervisors need little involvement with subordinates, the span can be ______________________.
large
In a survey conducted, 72% of managers surveyed said they believed their organization had too many _________________________________.
levels of management
Staff departments support ____________________ departments.
line
Company structure follows company strategy. What are the structural responses to strategy and environment? (Study Exhibit 10.14)
mechanistic organizations and organic organizations
staff authority
narrow authority that includes the right to advise, recommend, and counsel in the staff specialists' area of expertise (e.g. Marketing, Labor Relations, Accounting, Human Resources departments
Global Matrix Structure (Study exhibit 10.7)
organizational structure that splits the chain of command between product and area divisions
project manager (Study Exhibit 10.12)
person who is responsible for coordinating the activities of several departments for the completion of a specific project Note: A project manager is NOT a member of one of the departments being coordinated.
top leader
person who oversees both the product and functional chains of command and is responsible for the ENTIRE matrix
When organizations face new strategic issues, managers often create new __________________________________ to deal with them.
positions or departments For example, Sony added the new position of Chief Information Security Officer to its hierarchy after hackers struck. It wasn't enough to prevent a massive 2014 hack of Sony Pictures that leaked embarrassing information.
direct contact with customers
production and consumption are simultaneous (bank tellers process deposits/withdrawals, hotels provide a room, airlines provide a flight, amusement parks provide a ride)
intangible output
services are perishable and cannot be stored in inventory
tall structure (Study Exhibit 10.2)
span of management that is NARROW and has MANY hierarchical levels
flat structure (Study Exhibit 10.2)
span of management that is WIDE and has FEW hierarchical levels
Organizations perform a wide variety of tasks. Work can be performed more efficiently if employees are allowed to __________________.
specialize
mass production
standardized production runs of a large volume of identical products (e.g. automobiles, tobacco products, textiles)
The average span of control used in an organization determines whether the structure is ______________ or ______________.
tall, flat
authority
the FORMAL AND LEGITIMATE RIGHT of a manager to make decisions, issue orders, and allocate resources to achieve organizationally desired outcomes
Departmentalization
the basis for grouping individual positions into departments and departments into the total organization
division of labor (aka work specialization)
the degree to which organizational tasks are subdivided into separate jobs. This is often seen with automobile assembly lines, where each employee performs the same task over and over again.
organizing
the deployment of organizational resources to achieve strategic goals
responsibility (the flip side of authority)
the duty to perform the task or activity assigned
Team-Based structure (see Exhibit 10.8)
the entire organization is made up of horizontal teams that coordinate their work and work directly with customers to accomplish the organization's goals
Virtual Network structure (study exhibit 10.9)
the firm subcontracts most of its major functions to separate companies and coordinates their activities from a small organization to headquarters (E.G. Smart Balance - Peanut Butter)
coordination
the managerial task of collaborating across departments
accountability
the mechanism through which authority and responsibility are aligned. (This means that people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in the chain of command.)
span of management (aka span of control)
the number of subordinates who report to a particular manager
What 2 main factors influence organizational structure? (See Exhibit 10.13)
the organizations STRATEGIC NEEDS (environment, strategy, goals) and OPERATIONAL NEEDS (technology, work processes)
delegation
the process that managers use to TRANSFER AUTHORITY AND RESPONSIBILITY DOWN THE HIERARCHY For example, it's the manager's responsibility to write and present a slide show at an important meeting, but he instead delegates these task to a subordinate instead).
matrix boss
the product or functional boss, who is responsible for one side of the matrix
organization chart (refer to Exhibit 10.1)
the visual representation of an organization's structure
Like Google, many companies shift from a functional structure to a divisional structure when they become so large that the disadvantages of a functional structure become ________________________.
too great (see Exhibit 10.4)
A common structural problem in organizations is there are too many levels with a span that is ___________________.
too narrow
The set of formal tasks and formal reporting relationships provides a framework for ____________________________________.
vertical control of the organization