Chapter Seven

Creating a Flexible Organization

Learning Objectives1. Understand what an organization is and identify its characteristics2. Explain why job specialization is important3. Identify the various bases for departmentalization4. Explain how decentralization follows from delegation5. Understand how the span of management describes the organization6. Understand how the chain of command is established by using line

and staff management7. Describe the four basic forms of organizational structure:

bureaucratic, matrix, cluster, and network team8. Summarize the use of corporate culture, intrapreneurship,

committees, coordination techniques, informal groups, and the grapevine

What Is an Organization?A group of two or more people working together

to achieve a common set of goalsDeveloping organization charts

– Organization chart• A representation of the positions and relationships in an

organization

– Chain of command• The line of authority that extends from the highest to the

lowest levels of the organization

– Staff (advisory) positions• Jobs that are not part of the direct chain of command in

the organization

A Typical Corporate Organization Chart

Five Steps to Organizing a Business

1. Job design• Divide the work into separate parts and assign those parts to

positions2. Departmentalization

• Group the positions into manageable units3. Delegation

• Distribute responsibility and authority4. Span of management

• Determine the number of subordinates who will report to each manager

5. Chain of command• Designate the positions with direct authority and those that

are support positions

Job Design Job specialization

– The separation of activities into distinct tasks and the assignment of different tasks to different people

Rationale for specialization– The “job” of the organization is too large for one person to

accomplish

– A worker learning only a specific, highly specialized task should be able to learn to do it efficiently

– Workers do not lose time switching from one operation to another

– Specialization makes it easier to design machinery to assist those who do the job

– Specialization makes it easier to train new workers

Class Exercise

Job specialization is the separation of all organizational activities into distinct tasks and the assignment of different tasks to different people.1. What are the advantages of job specialization?2. What are the disadvantages of job specialization?3. What types of jobs lend themselves to

specialization?4. What types of jobs do not lend themselves to

specialization?

Job DesignAlternatives to job specialization

– Job rotation• The systematic shifting of employees from one job to

another to reduce boredom and dissatisfaction

– Job enlargement• Adding tasks to a job to increase the variety of a worker’s

activities

– Job enrichment• Increasing the autonomy (self-governing) workers have in

deciding how to do their jobs

Grouping jobs into manageable unitsCommon bases for departmentalization

– By function– By product– By location– By customer– Combinations

Departmentalization

Departmentalization by Function

Finance M arketing O perations

CEO

Departmentalization by Product

Com puters Printers Softw are

CEO

Departmentalization by Location

U.S. Region EuropeanRegion

AsianRegion

CEO

Departmentalization by Customer

Hom eUsers

BusinessUsers

EducationalUsers

CEO

Delegation, Decentralization, and Centralization

Delegation– Assigning part of a manager’s work and power to

other workers– Responsibility

• The duty to do a job or perform a task– Authority

• The power within the organization to accomplish an assigned task.

– Accountability• The obligation to accomplish an assigned job or task

Steps in the Delegation ProcessThe manager

assigns responsibility

The subordinate is empowered to do the task

Ultimate accountability remains with the manager

Decentralization of Authority

Decentralized organization– Management consciously attempts to spread authority widely in

the lower levels of the organization

Centralized organization– Authority is concentrated at the upper levels of the organization

Factors favoring decentralization– A complex and unpredictable business environment

– Decisions that carry low risk or that are unimportant

– Highly capable lower-level managers with strong decision-making skills

– Past practices of the firm in decentralizing its structure and decision-making processes

The Span of Management

Wide and narrow spans of control

The Span of Management Organizational height

– Flat organizations• Have wider spans of management and fewer levels

• Require managers to perform more administrative tasks and to spend more time supervising subordinates

– Tall organizations• Have narrow spans of management and many levels

• Have higher administrative costs (more managers)

• May distort internal communications during passage of the communications through the multiple levels of organization

Debate Issue: Should Firms Use Downsizing When Employees Are No Longer Needed?

YES

Downsizing can lead to quicker decision making, precise accountability, and harder-working employees.

Downsizing can significantly reduce a firm’s salary expense when unneeded employees are terminated.

NO

Employees are needed to perform their jobs or they wouldn’t have been hired in the first place.

Downsizing is expensive because most companies must make severance payments and fund retirement plans.

Chain of Command: Line and Staff Management

Line management position– A position that is part of the chain of command; includes

direct responsibility for achieving the goals of the organization

• Line authority—the authority line managers have to make decisions and issue directives related to organizational goals

Staff management position– A position created to provide support, advice, and expertise

within an organization• Advisory authority—the expectation that line managers will

consult with staff managers before making decisions• Functional authority—staff managers’ authority to make

decisions and issues directives within their area of expertise

Line and Staff Management

Line-Staff Conflict Reasons for conflict

– Staff managers often have more formal education– Staff managers are sometimes younger and more ambitious– Line managers may perceive staff managers as a threat– Staff managers may become angry if their recommendations

are not adopted Minimizing conflict

– Integrate line and staff managers into one team– Ensure that responsibilities are clearly defined– Hold both line and staff managers accountable for results

Forms of Organizational Structure

Bureaucratic structure– A management system based on a formal framework of authority that is

carefully outlined and precisely followed– Characteristics

1. A high level of job specialization2. Departmentalization by function3. Formal patterns of delegation4. A high degree of centralization5. Narrow spans of management, resulting in a tall organization6. Clearly defined line and staff positions

– Advantages• Inflexibility helps ensure fair and equitable treatment

– Disadvantages• Inflexibility creates problems in adapting to dynamic business

environments

Forms of Organizational Structure

Matrix structure– A structure that combines vertical and horizontal

lines of authority, usually by superimposing product departmentalization on functional departmentalization

– Authority flows both down and across– Employees on cross-functional teams report to both

the project manager in charge of the team and to their superiors in their home-base functional department

A Matrix Structure

Source: Ricky W. Griffin, Management, 9th ed. Copyright © 2008 by Houghton Mifflin Company. Adapted with permission.

The Matrix StructureAdvantages

Added flexibility Increased productivity Higher morale Increases in creativity and

innovation Personal development of team

members

Disadvantages Chain of command conflicts May take longer to resolve

problems and reach solutions Personality clashes Poor communications Undefined individual roles Unclear responsibilities Difficulty in determining

how to reward individual and team performance

Forms of Organizational Structure

Cluster structure– An organization that consists primarily of teams with no or very

few underlying departments

– Also called “team” or “collaborative” structures

– Teams may move on to other projects or individual members may be reassigned to different teams and projects

– Strengths• Small teams allows for flexibility to change direction quickly and try

new things

– Weaknesses• Employees may be concerned about job security

• Increased stress due to rapid changes

Forms of Organizational Structure

Network structure (virtual organization)– An organization in which administration is the primary

function performed and most other functions such as engineering, production, and marketing are contracted out to other firms

– Strength• Flexibility allows the organization to adjust quickly to changes

– Weaknesses• Difficulty controlling the quality of work by other organizations• Low morale and high turnover of hourly workers• Vulnerability of relying on outside contractors

Additional Factors That Influence an Organization

Corporate culture– The inner rites, rituals, heroes, and values of a firm

– Indicators of corporate culture• The physical setting (e.g., building and office layout)

• Corporate statements about itself

• How the company greets its guests

• How employees spend their time at work (alone or in groups)

– Cultural change is needed when• The business environment changes

• Company performance is mediocre

• The company is growing or becomes a large firm

Additional Factors That Influencean Organization

Intrapreneurship– Intrapreneur—an employee who pushes an

innovative idea, product, or process through the organization while using the organization’s resources for idea development

Elements Needed to Develop Successful Intrapreneurs

Encouragement by management and organizationIndividual motivationTransparency, openness and communalityIndividual competenceEnabling working environmentEncouragement to innovationsDevelopment

Source: J. Heinonen and K. Korvela, “How About Measuring Intrapreneurship,” Turku School of Economics and Business Administration, 2003, http://www.tukkk.fi/pki/julkaisut/konferenssit/EISB2003/Heinonen_Korvela_EISB2003.pdf#search=%22data%20%20%22intrapreneurship%22%20-edu%22

Additional Factors That Influencean Organization

Committees– Types

• Ad hoc—created for a specific short-term purpose

• Standing—relatively permanent; charged with performing some recurring task

• Task force—established to investigate a major problem or pending decision

– Positive aspects• Members bring more information and knowledge; more accurate

decisions; results communicated more effectively

– Negative aspects• Decisions making takes longer; may reach unnecessary compromises;

one person may dominate

Additional Factors That Influencean Organization

Coordination techniques– Managerial hierarchy

• The arrangement that provides for increasing authority at higher levels of management

– Rules and procedures

– Liaison to coordinate the activities of groups

– Committee to integrate complex coordination

Additional Factors That Influencean Organization

Informal organization– Patterns of behavior and interactions that stem from personal,

rather than official, relationships in the organization– Informal groups

• Formed by the members themselves to accomplish goals that may or may not be relevant to the organization

• Reasons for joining: the need for affiliation; agreement with the goals of the group; desire to be accepted

– The grapevine• Informal communication network within an organization that is

completely separate from—and sometimes faster than—the organization’s formal communication channels

– May be accurate or distorted; managers should be aware and use appropriately

Chapter Quiz1. Solid vertical lines on an organization chart indicate

relationships amonga) staff positions.b) employees.c) delegated positions.d) the chain of command.e) line and staff positions.

2. The systematic shifting of employees from one job to another is called joba) specialization.b) rotation.c) sharing.d) enlargement.e) enrichment.

Chapter Quiz

3. Grouping all activities according to the geographic area in which they are located is departmentalization bya) function.b) employee.c) product.d) customer.e) location.

4. In a ______ organization, administrative costs are higher because more managers are needed.a) longb) flatc) talld) shorte) broad

Chapter Quiz

5. The power to accomplish an assigned job is called a) authority.b) accountability.c) responsibility.d) delegation.e) obligation.

Answers to Chapter Quiz

1. Solid vertical lines on an organization chart indicate relationships amonga) staff positions.b) employees.c) delegated positions.d) the chain of command.(Correct)e) line and staff positions.

2. The systematic shifting of employees from one job to another is called joba) specialization.b) rotation. (Correct)c) sharing.d) enlargement.e) enrichment.

Answers to Chapter Quiz

3. Grouping all activities according to the geographic area in which they are located is departmentalization bya) function.b) employee.c) product.d) customer.e) location. (Correct)

4. In a __________ organization, administrative costs are higher because more managers are needed.a) longb) flatc) tall (Correct)d) shorte) broad

Answers to Chapter Quiz

5. The power to accomplish an assigned job is called a) authority. (Correct)b) accountability.c) responsibility.d) delegation.e) obligation.