*

*Chapter Eight

Adapting Organizations

to Today’s Markets

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Learning Outcomes

• Outline the basic principles of organization • Compare the organizational theories of

Fayol and Weber. • Evaluate the choices managers make in

structuring organizations.• Contrast the various organizational models.• Explain how organizational culture can help

businesses adapt to change.

Organizing/structuring

• Begins with determining what work needs to be done (mowing, edging, trimming)

• Dividing up the tasks among the three of you; this is called a division of labor.

• The success of a firm often depends on management’s ability identify each worker’s strengths and assign the right tasks to the right person.

• Dividing tasks into smaller jobs is called job specialization.

*

*Everyone’s Organizing

• Many companies are reorganizing, especially those in decline. Including:- Auto makers- Homebuilders- Banks

• Adjusting to changing markets is normal in capitalist economies.

• Companies must go back to basic organizational principles and firm up the foundation.

REORGANIZATION is for EVERYONE

LG1

8-4

*

*Building an Organization from the Bottom Up

• Create a division of labor

• Set up teams or departments

-The process of setting up individual departments to do specialized tasks

-know who was responsible.

• Allocate resources

• Assign tasks

• Establish procedures

• Adjust to new realities

STRUCTURING an ORGANIZATIONLG1

8-5

*

*The Changing Organization

• Often change in organizations is due to evolving business environments:- More global competition

- Declining economy

- Faster technological change

- Pressure to protect the environment

• Customer expectations have also changed --Consumers today want high-quality products with fast, friendly service and all at low cost.

THE CHANGING ORGANIZATION

LG2

8-6

*

*The Development of Organization Design

• Mass production of goods led to complexities in organizing businesses.

PRODUCTION CHANGED ORGANZIATION DESIGN

LG2

• Economies of Scale -- Companies can reduce their production costs by purchasing raw materials in bulk.

• The average cost of goods decrease as production levels rise. (fixed cost per unit be decrease)

8-7

*

*Fayol’s Principles of Organization

• Unity of command

-each worker is to report to one, and only one boss.

-to prevent confusion.

• Hierarchy of authority

-all workers should know to whom they report.

-Managers should have the right to give orders and expect others to follow.

FAYOL’S PRINCIPLES

LG2

8-8

FAYOL’S PRINCIPLES• Division of labor

-functions are to be divided into areas of specialization such as production, marketing, and finance.

• Subordination of individual interests to the general interest

-workers are to think of themselves as a coordinated team.

-The goals of the team are more important than the goals of individual workers.

FAYOL’S PRINCIPLES• Authority

-managers have the right to give orders and the power to enforce obedience.

-authority and responsibility are related

• Degree of centralization

-the amount of decision-making power vested in top management should vary by circumstances.

-in small organization, it’s possible to centralize all decision-making power in the top manager.

-in a larger organization, whoever, some decision making power, for both major or minor issues, should be delegated to lower-level managers and employees.

FAYOL’S PRINCIPLES

• Clear communication channels

• Order

-materials and people should be placed and maintained in proper location.

• Equity

-managers should fair to employees

• Esprit de corps

-a spirit of pride and loyalty should be created among people in the firm.

*

*Fayol’s Principles of Organization

• Organizations in which employees have no more than one boss; lines of authority are clear.

ORGANIZATIONS BASED on FAYOL’S PRINCIPLES

LG2

Disadvantages

• Rigid (not flexible) organizations that often don’t respond to customers quickly.

8-12

Bureaucracy• Weber was in favor of bureaucracy and believed

that these principles were necessary for large organizations’ effective functioning. However, in today’s corporate world, these rules and bureaucracy do not necessarily work.

• Organizations need to respond to customers and other environmental factors quickly which calls for a creative, flexible, and a quick decision making process contrary to a bureaucratic process.

*

*Max Weber and Organizational Theory

• Employees just need to do what they’re told.

• In addition to Fayol’s principles, Weber emphasized:- Job descriptions.- Written rules, decision

guidelines and detailed records.- Consistent procedures,

regulations and policies.- Staffing and promotion based

on qualifications.

WEBER’S PRINCIPLES

LG2

8-14

*

* Turning Principles into Organization Design

• When following Fayol and Weber, managers control workers.

• Hierarchy -- A system in which one person is at the top of an organization and there is a ranked or sequential ordering from the top down.

• Chain of Command -- The line of authority that moves from the top of the hierarchy to the lowest level.

HIERARCHIES and COMMAND

LG2

8-15

*

* Turning Principles into Organization Design

LG2

TYPICAL ORGANIZATION CHART

8-16

*

* Turning Principles into Organization Design

• Bureaucracy -- An organization with many layers of managers who set rules and regulations and oversee all decisions.

• It can take weeks or months to have information passed down to lower-level employees. (long time for make decision)

• Bureaucracies can annoy customers.

BUREAUCRATIC ORGANIZATIONSLG2

8-17

*

*Choosing Centralized or Decentralized Authority

• Centralized Authority -- When decision-making is concentrated at the top level of management.

CENTRALIZATION or DECENTRALIZATION? LG3

• Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters.

8-18

CentralizedAdvantages-greater top-management control-more efficiency-simpler distribution-Stronger brand/corporate imageDisadvantages-less responsiveness to customers-less empowerment-interorganisational conflict-lower morale away from headquarters

DecentralizedAdvantages-better adaption to customer wants-More empowerment of workers-faster decision making-high moraleDisadvantages-less efficiency-Complex distribution system-less top-management control-weakened corporate image

*

*Choosing the Appropriate Span of Control

• Span of Control -- The optimal number of subordinates a manager supervises or should supervise.

• When work is standardized, broad spans of control are possible.

• Appropriate span narrows at higher levels of the organization.

• The trend today is to reduce middle managers and hire better low-level employees.

SPAN of CONTROLLG3

8-21

Narrow span of controlAdvantages-more control by top management-More chances for advancement-Greater specialization-Closer supervisionDisadvantages-less empowerment-higher costs-delayed decision making-less responsiveness to customers

Broad span of controlAdvantages-reduced costs-more responsiveness to customers-Faster decision making-More empowermentDisadvantages-Fewer chances for advancement-Overworked managers-Loss of control-Less management expertise.

*

* Choosing Tall versus Flat Organization Structures

• Structures determine the way the company responds to employee and customer needs.

• Tall Organization Structures -- An organizational structure in which the organization chart would be tall because of the various levels of management.

• Flat Organization Structures -- An organizational structure that has few layers of management and a broad span of control.

ORGANIZATIONAL STRUCTURESLG3

8-24

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* Choosing Tall versus Flat Organization Structures

FLAT ORGANIZATIONAL STRUCTURE

LG3

8-25

*

*Weighing the Advantages and Disadvantages of Departmentalization

• Departmentalization -- Divides organizations into separate units.

• Workers are grouped by skills and expertise to specialize their skills.

DEPARTMENTALIZATION

LG3

8-26

*

*Weighing the Advantages and Disadvantages of Departmentalization

• Employees develop skills and progress within a department as they master skills.

• The company can achieve economies of scale.

• Employees can coordinate work within the function and top management can easily direct activities.

ADVANTAGES of DEPARTMENTALIZATION

LG3

8-27

*

*Weighing the Advantages and Disadvantages of Departmentalization

• Departments may not communicate well.

• Employees may identify with their department’s goals rather than the organization’s.

• The company’s response to external changes may be slow.

• People may not be trained to take different managerial responsibilities, instead they become specialists.

• Department members may engage in groupthink and may need outside input.

DISADVANTAGES of DEPARTMENTALIZATION

LG3

8-28

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*Looking at Alternate Ways to Departmentalize

LG3

WAYS to DEPARTMENTALIZE

8-29

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*Looking at Alternate Ways to Departmentalize

LG3

WAYS to DEPARTMENTALIZE

8-30

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*Organization Models

1. Line Organizations

2. Line-and-Staff Organizations

3. Matrix-Style Organizations

4. Cross-Functional Self-Managed Teams

FOUR WAYS to STRUCTURE an ORGANIZATION

LG4

8-31

*

*Line Organizations

• Line Organization -- Has direct two-way lines of responsibility, authority and communication running from the top to the bottom. Everyone reports to one supervisor.

• There are no specialists, legal, accounting, human resources or information technology departments.

• Line managers issue orders, enforce discipline and adjust the organization to changes.

LINE ORGANIZATIONS

LG4

8-32

*

*Line-and-Staff Organizations

• Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees.

• Line personnel have authority to make policy decisions.

LINE PERSONNEL

LG4

8-33

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*Line-and-Staff Organizations

• Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees.

STAFF PERSONNEL

LG4

8-34

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*Line-and-Staff Organizations

LG4

SAMPLE LINE-and-STAFF ORGANIZATION

8-35

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*Matrix-Style Organizations

• Matrix Organization -- Specialists from different parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure. (The creation of matrix organizations was in response to the inflexibility of other more traditional organizational structures. )

MATRIX ORGANIZATIONS

LG4

• Emphasis is on product development, creativity, special projects, communication and teamwork. 8-36

*

*Matrix-Style Organizations

LG4

SAMPLE MATRIX ORGANIZATION

8-37

*

*Matrix-Style Organizations

• Managers have flexibility in assigning people to projects.

• Interorganizational cooperation and teamwork is encouraged.

• Creative solutions to product development problems are produced.

• Efficient use of organizational resources.

ADVANTAGES of the MATRIX STYLE

LG4

8-38

*

*Matrix-Style Organizations

• It’s costly and complex.

• Employees may be confused about where their loyalty belongs.

• Good interpersonal skills and cooperative employees are a must.

• It’s a temporary solution to a possible long-term problem.

• Teams are not permanent.

DISADVANTAGES of the MATRIX STYLE LG4

8-39

*

*Cross-Functional Self-Managed Teams

• A way to fix the problem of matrix-style teams is to establish long-term teams.

• Empower teams to work closely with suppliers, customers and others to figure out how to create better products.

• Cross-Functional Self-Managed Teams -- Groups of employees from different departments who work together on a long-term basis.

CROSS-FUNCTIONAL SELF-MANAGED TEAMS

LG4

8-40

*

*Going Beyond Organizational Boundaries

• Cross-functional teams work best when the voice of the customer is heard.

• Teams that include customers, suppliers and distributors goes beyond organizational boundaries.

• Government coordinators may assist in sharing market information beyond national boundaries.

GOING BEYOND ORGANIZATIONAL BOUNDARIES

LG4

8-41

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*Adapting to Change

• Change isn’t easy. Employees like to do things the way they always have.

• Get rid of old, inefficient facilities and equipment.

• Use the Internet to get to know your customers and sell directly to them.

ADAPTING to MARKET CHANGES

LG5

8-42

*

*Restructuring for Empowerment

• Restructuring -- Redesigning an organization so it can more effectively and efficiently serve its customers.

• Inverted Organization -- An organization that has contact people at the top and the CEO at the bottom of the organizational chart.

RESTRUCTURING

LG5

• The manager’s job is to assist and support frontline workers, not boss them.

8-43

*

*Restructuring for Empowerment

LG5

TRADITIONAL and INVERTED ORGANIZATIONS

8-44

Inverted organisation

• The inverted organization structure is an alternate to the traditional management layers. The critical idea behind the inverted organization structure is that the managers’ job is to support and facilitate the job of the frontline people, not boss them around.

*

*Creating a Change-Oriented Organizational Culture

• Organizational or Corporate Culture -- The widely shared values within an organization that foster unity and cooperation to achieve common goals

• Some of the best organizational cultures emphasize service.

• Culture is shown in stories, traditions and myths.

ORGANIZATIONAL CULTURE

LG6

8-46

*

*Managing the Informal Organization

• Formal Organization -- Details lines of responsibility, authority and position.

• The formal system is often slow and bureaucratic but it helps guide the lines of authority.

• No organization can be effective without formal and informal organization.

FORMAL ORGANIZATION

LG6

8-47

*

*Managing the Informal Organization

• Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships.

INFORMAL ORGANIZATION

LG6

• Informal organization helps foster camaraderie and teamwork among employees.

8-48

*

*Managing the Informal Organization

• The informal system is too unstructured and emotional on its own.

• Informal organization may also be powerful in resisting management directives.

LIMITATIONS of INFORMAL ORGANIZATIONS

LG6

8-49

*

*

Source: CIO Magazine, www.cio.com,.

• Do your job but don’t produce more than the rest of your group.

• Don’t tell off-color jokes or use profanity.

• Everyone is to be clean and organized at the workstation.

• Respect and help your fellow group members.

• Drinking is done off the job – NEVER at work.

GROUP NORMSExamples of Informal Group Norms

Managing the Informal Organization

LG6

8-50

*

*

• Informal networks are easier to maintain in small businesses.

• Communication among large corporate units isn’t managed as well, inhibiting innovation.

• Large corporations could form cross-departmental sports teams or sponsor cross-departmental parties to get ideas flowing in more informal settings.

KEEPING THAT SMALL-COMPANY FEELING

(Spotlight on Small Business)

8-51

*

*Progress Assessment

• Why are organizations becoming flatter?

• What are some reasons for having a narrow span of control in an organization?

• What are the advantages and disadvantages of departmentalization?

• What are the various ways a firm can departmentalize?

PROGRESS ASSESSMENT

8-52

*

*Progress Assessment

• What’s the difference between line and staff personnel?

• What management principle does a matrix-style organization challenge?

• What’s the main difference between a matrix-style organization’s structure and the use of cross-functional teams?

• What’s organizational culture?

PROGRESS ASSESSMENT

8-53

Answer:

1.Why are organizations becoming flatter? Over the last 25 years businesses have adopted flatter organizations with fewer layers of management and a broader span of control in order to quickly respond to customer demands. A flatter organization gives lower-level employees the authority and responsibility to make decisions directly affecting customers.

2.What are some reasons for having a narrow span of control in an organization? Span of control refers to the number of subordinates a manager supervises. Generally, the span of control narrows at higher levels of the organization, because work becomes less standardized and managers need more face-to face communication.

3. What are the advantages and disadvantages of departmentalization? The advantages of departmentalization include: Departmentalization may

reduce costs, since employees should be more efficient, employees can develop skills in depth and progress within a department as they master more skills; the company can achieve economies of scale by centralizing all the resources it needs and locating various experts in that particular area; employees can coordinate work within the function, and top management can easily direct and control various departments’ activities.

The disadvantages of departmentalization include: Communication is inhibited; employee’s may identify with their department’s goals rather than the organization’s; the company’s response may be slowed by departmentalization; employee’s tend to be narrow specialists; department members may engage in groupthink and may need input from the outside to become more competitive.

4. What are the various ways a firm can departmentalize? An organization can elect to departmentalize in the following ways: customer group, product, functional, geographic, process, and hybrid.

Answer:

1.What’s the difference between line and staff personnel? Line personnel are responsible for directly achieving organizational goals. Line personnel include production workers, distribution people, and marketing personnel. Staff personnel advise and assist line personnel in meeting their goals.

2. What management principle does a matrix-style organization challenge? The flexibility inherent in the matrix-style organization directly challenge the rigid line and line-and-staff organization structures.

3. What’s the main difference between a matrix-style organization’s structure and the use of cross-functional teams? The main difference between matrix-style organization and cross-functional teams is that cross-functional teams tend to be long-lived as compared to the temporary and fluid nature of teams in a matrix-style organization.