Business Administration For Quiuzgecko - Chapter 12 PDF

Chapter 12: "What Departments Does Your Company Need?" ====================================================== **ORGANIZING: THE SECOND OF THE MANAGERIAL ACTIVITIES** As you recall, we learned in the last chapter that every manager had four core activities in common: planning, organizing, communica...

Chapter 12: "What Departments Does Your Company Need?" ====================================================== **ORGANIZING: THE SECOND OF THE MANAGERIAL ACTIVITIES** As you recall, we learned in the last chapter that every manager had four core activities in common: planning, organizing, communicating, and controlling. In this chapter, we'll take a look at the second of these activities: "**Organizing**". Through your planning, you've determined **(a)** where you want to go; and **(b)** how you want to get there. Now, you need to decide [which of your resources will do "what", "when", "where", and "how"]. That's what organizing is. Or -- to formulate it more elegantly: "*Organizing is the process of systematically arranging resources, tasks, and people in a structured manner to reach the goals of an organization.*" Organization is based on two pillars: **(a)** creating structure and **(b)** deciding on workflow. We'll start with structure. +-----------------------------------+-----------------------------------+ | **ORGANIZING =** | 2. **Creating a Structure (i.e. | | | "Who reports to whom?")** | +===================================+===================================+ | | 1. **Deciding on the Workflow | | | (i.e. "Who does what in which | | | order?"** | +-----------------------------------+-----------------------------------+ **WHY DOESN'T EVERYBODY JUST DO "A LITTLE BIT OF EVERYTHING"?** Logically, once a manager sets goals and a strategy, their organization is left with thousands of "To Do's". Assuming the organization has 100 employees to carry out these "To Do's", it has two options: - - [Option B is by far the wiser course of action]. There are several reasons for this: - **Enhanced Skill Development:** If employees focus on tasks that all fall under a similar area of expertise, this will allow them to develop specialized skills and knowledge; - **Reduced Training Time:** When employees specialize in specific tasks, there is less need for extensive training across a wide range of responsibilities; - **Task Efficiency and Speed:** Employees who master specific tasks can perform them more quickly and accurately, minimizing errors and reducing the time required to complete tasks; - **Improved Quality and Accuracy:** Specialization allows employees to develop a deeper understanding of best practices and potential challenges associated with their tasks; For all of these reasons, as soon as an organization has a sufficient number of employees,\ it divides up its work based on **Job Specialization** (i.e. "Option B" from the previous slide). Job specialization involves [dividing up an organization's tasks among individual jobs by clustering together tasks that require a similar set of skills, knowledge, and expertise]. This is how the many jobs you know -- from "account manager" to "stylist" to "doctor" to "forklift operator" to "programmer" -- were created. Undeniably, job specialization is among the most important contributors to the economic boom our planet has been experiencing for the past 250 years. However, job specialization also bears risks when taken too far. These are: - - - **CLUSTERING ALL THOSE SPECIALIZED JOBS INTO DEPARTMENTS** Let's assume that we have a company with 500 employees. Due to job specialization, each of these employees has a set of specialized tasks. The first is a Business Development Manager, the second a Graphic Designer. The third is a Financial Analyst, the fourth a Quality Assurance Specialist. And so on. What do we do with all of them? Randomly assign each of them desks next to each other and watch? That would not be clever. The result would be chaos. Instead, organizations [cluster their employees into groups based on similar functions, tasks, or areas of expertise]. This is called "**Departmentalization**" and the groups are called "**Departments**". Departmentalization offers many advantages: - - - - **\ ** **DEPARTMENTS, HIERARCHY, AND ORGANIZATION CHARTS** Once the various jobs of an organization have been grouped into departments, the next question arises: [Who tells who what to do?] Within a department, this question can be answered fairly simply. An organization's top managers generally appoint one person per department to act as the **Head of Department**. The Head of Department then leads all the other members of their department. Naturally, all the Heads of Departments "**report to**" (i.e., "are led by") the Top Management of the organization. But what about [between departments?] Can one department tell another department what to do? The answer is: "Sometimes". In case establishing a hierarchical relationship between departments (and between individual jobs) benefits a business model, then creating such a structure is apart of your "organizing" responsibility as a leader. The **Chain of Command** refers to the structure within an organization outlining the flow of authority from the top-level management downwards to the front-line employees. Typically, the chain of command flows from the highest-ranking authority down to the lowest-ranking employees. In a traditional organizational structure, it might look like this: +-----------------------+-----------------------+-----------------------+ | | 1. 2. 3. 4. | | +-----------------------+-----------------------+-----------------------+ Information, instruction, and decisions generally flow from the top of the chain downwards, while feedback, updates, and reports flow upwards. The Chain of Command of an organization is visualized in its **Organizational Chart.** Ein Bild, das Screenshot, Computer, Rechteck, Design enthält. Automatisch generierte Beschreibung In **large organizations**, the Organization Chart typically shows [the hierarchical relationship of the departments (and other units) to one another]. In **small organizations**, it is more common for the Organization Chart to show the [hierarchical relationship of different job roles to one another]. Departments can be embedded in a chain of command in one of two ways: - **Line Departments** are departments that are [involved in an organization's primary business activities] (e.g. **Operations**, **Supply Chain Management**, **Marketing, Sales**). The are connected to other departments through a straight line in the organization chart. - *If a line department is connected to a hierarchically lower department through a straight line, its management [can issue instructions to the management of the lower-level department].* - **Staff Departments** are departments that [provide support and advice to the line departments] ([but cannot issue instructions to these]). They are connected to other departments through a dotted line. **HR**, **Legal**, and **IT** Departments are commonly set up as staff departments. A manager\'s **\"Span of Control\"** refers to [the number of subordinates that the manager supervises]. The greater the number of employees that a manager is responsible for, the **wider** their span of control is said to be. In contrast, managers whose chain of command\ puts them in charge of only very few employees have a "**narrow**" span of control. The **[advantages of a wider span of control]** include **(a)** greater flexibility and adaptability, **(b)** reduced costs, and **(c)** faster decision-making [on issues that have to be approved by higher levels of management] (each due to fewer layers of management). Many employees also experience **(d)** more empowerment due to autonomy. The **[advantages of a narrower span of control]** include **(a)** better supervision and training of each employee (i.e. because managers have more time per employee), **(b)** more direct communication, **(c)** faster decision-making [on issues that the manager has full decision-making authority on], and **(d)** a reduced workload for managers. **Factors that should determine a manager's span of control:** - - - - - - - Depending on how **decision-making authority** is distributed throughout an organization,\ an organization is said to be either "centralized" or "decentralized". +-----------------------------------+-----------------------------------+ |  | In **centralized organizations**, | | | the main [decision-making | | | authority is reserved for the top | | | management]. If | | | employees on other levels of the | | | organization wish to make | | | decisions, these typically have | | | to be approved by the higher | | | levels first. | | | | | | Due to this increased workload, | | | managers in centralized | | | organizations typically have | | | narrower spans of control, | | | leading to more layers of | | | management (i.e. "**tall | | | organizations**"). | +-----------------------------------+-----------------------------------+ +-----------------------------------+-----------------------------------+ | Ein Bild, das Screenshot, | In **decentralized | | Farbigkeit, Rechteck, Design | organizations**, [decision-making | | enthält. Automatisch generierte | authority is distributed more | | Beschreibung | liberally throughout the | | | organization]. | | | Employees at lower levels of the | | | organization can make many | | | decisions without first having to | | | seek the approval of higher | | | levels. | | | | | | Managers in decentralized | | | organizations typically have | | | wider spans of control (as less | | | time is required for reviewing | | | and approving employee requests), | | | which leads to fewer layers of | | | management (i.e. "**flat | | | organizations**"). | +-----------------------------------+-----------------------------------+ ***[Centralized (tall organizations)]*** - - ***[Decentralized (flat organizations)]*** - - **\ ** **COST CENTERS AND PROFIT CENTERS** Sometimes, departments are set up as a special type of entity: as **Cost Centers** or even as\ **Profit Centers**. While this is more common in larger organizations, there is no reason why a\ similar approach would not work in smaller ones. **First, lets explore what exactly each of these terms entail:** - - - - - - Understanding the distinction between cost centers and profit centers is [crucial] for effective financial management, as it determines how resources are allocated, costs are controlled, and performance is measured within an organization. **\ ** **FEEL THE FLOW: ORGANIZATIONAL STRUCTURE** When we refer to a company's **Organizational Structure**, what we mean is [the way in which the chain of command (i.e. the decision-making authority) flows through the company]. Traditionally, organizations have either adopted either a **Functional Organizational Structure**, a **Divisional Organizational Structure** or a **Matrix Organizational Structure**. 1. **"THE CLASSICS" \#1: A FUNCTIONAL ORGANIZATIONAL STRUCTURE** In a Functional Organizational Structure, **[the departments directly below the Board are (mostly) set up as functional departments]** (e.g. Purchasing, Operations, Logistics, Marketing, Sales, Finance).  This does not mean that there can't be subordinated departments that are e.g. product-based, process-based, customer-based, or geographic. However, in terms of the organization's business model and strategy, [the focus on functional expertise takes priority] over the other types of departments. Organizations that adopt a Functional Organizational Structures are typically [more flexible] in regard to the goods and services they create than Divisional Organizational Structures. They also cost less (as fewer resources have to be duplicated), which is one reason most smaller companies adopt a Functional Structure. However, due to the focus on functional expertise (rather than on specific markets), [they are often slower at anticipating trends on individual markets] and produce/sell products less efficiently than would be possible under a Divisional Structure. 2. **"THE CLASSICS" \#2: A DIVISIONAL ORGANIZATIONAL STRUCTURE** In a Divisional Organizational Structure, **[the departments directly below the Board are (mostly) set up as Divisions]** (e.g. by product, by geography, by customer type). This does not mean that there are no functional departments in a Divisional Organizational Structure. However, in terms of the organization's business model and strategy, [the focus on specific products, markets and/or customer groups takes priority] over 'umbrella-like' functional expertise. Organizations that adopt a Divisional Structure typically become [highly efficient] at **(a)** [producing and selling specific products] and/or **(b)** satisfying the wants and needs of [specific customer groups] or [geographic markets]. This is because their departments specialize in these areas. However, a Divisional Organization is also by far [the most expensive Organizational Structure], as so many [resources have to be duplicated per Division]. Ín a sense, every Division is a "mini-company" within the company that requires all the infrastructure of a "mini-company". Due to their specialization, they also have a narrower, more 'standardized' range concerning the goods and services they offer. **\ ** 3. **"THE CLASSICS" \#3: A MATRIX ORGANIZATIONAL STRUCTURE** A Matrix Organizational Structure attempts to combine the advantages\ of the functional and divisional structures. [Most employees in a matrix structure have two managers that they report to]: **(a)** a **functional manager** (e.g. operations); and **(b)** a **divisional manager** (e.g. product manager, regional manager) [or] a **project manager**.  Think of a matrix structure like being part of two teams at once. Imagine your area of functional expertise is in the field of purchasing (i.e. you are a Buyer). You report to the Purchasing Manager. In addition, you also report to the Product Manager of the Shampoo Division. Whenever purchasing activities are required by this Division, you are called upon for your services. The motivation behind selecting a Matrix Structure is that the two reporting lines of most employees allows for [a balance between **(a)** functional expertise and **(b)** product/regional/ customer/ project specialization]. Organizations that adopt a Matrix Structure can benefit from an [optimal allocation of\ (e.g. huma)n resources], a high level of [adaptability], and an environment that promotes [innovation] (i.e. due to the mix of ideas in cross-functional teams). **[However]**: these benefits will only be reaped if all managers plan and coordinate their activities extremely well. If they don't (or simply lack the experience and/or skills), the **dual reporting relationships** will lead to [confusion], [conflict], [time management issues], and a general [communication overload]. 4. **STRUCTURES 2.0: TEAM-BASED STRUCTURE** In addition to the three classic structures that we've discussed, there are two newer forms of organizational structure. Each of these can be used to enhance -- or, in some cases, entirely replace -- the classic structures. In a **Team-Based Structure**, the organization is structured around groups of employees called **Self-Directed Teams**. These cross-functional teams are [given the authority to make decisions and manage their own work processes]. The goal is to promote collaboration, shared responsibility, and a stronger sense of entrepreneurial spirit and identity. While most team-based structures still include departments, their influence is often less prevalent than it is in traditional organizational structures. **[ADVANTAGES:]** - - - - - - **[DISADVANTAGES:]** - - - - - - **\ ** 5. **STRUCTURES 2.0: VIRTUAL STRUCTURE** The second of the newer organizational structures is a "**Virtual Structure**" (or "**Network Structure**"). Virtual Organizations [don't have a (noteworthy) physical presence]. Instead, the [partners involved are often geographically dispersed, and collaborate using digital communication tools] (e.g. internet). Virtual Organizations also tend to have [fewer full-time employees and rely on freelancers], instead. **[ADVANTAGES:]** - - - - - **[DISADVANTAGES:]** - - - - - **\ ** **WORKFLOW MANAGEMENT: COORDINATING YOUR BUSINESS PROCESSES** Up to now, we've focused on the [structural] decisions that managers make in context of organizing: 1. On the basis of your goals and your strategy (i.e. managerial function "**Planning**"),\ you've identified countless tasks that need to be carried out; 2. You've [clustered these tasks according to similarity] and divided them up among your\ employees (i.e. **Job Specialization**); 3. You've grouped employees with similar tasks into departments (i.e. **Departmentalization**); 4. You've determined the decision-making authority within your organization\ (i.e. **Chain of Command**), which has manifested itself in an **Organizational Structure**; Now that we have the structure, let's think about the **[flow]**\... By "flow", we're referring to the order in which all the tasks you've identified will be carried\ out -- and by whom. Because now that we have a structure, we're back to our original question of: This question is answered by the second pillar of Organizing: **Workflow Management**.\ Workflow management is the process of [organizing tasks, resources and information in a sequence that best allows your organization to reach its goals]. **"Who does what, when, where, and how?"** Sometimes, a task you coordinate will be a simple 'standalone' task. Far more often, though,\ many of your [tasks will be interconnected, and designed to deliver a specific result]. We call\ such an "interconnected chain of tasks" a **Business Process**. -- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **Example:** the chain of tasks that involves "generating leads", "qualifying prospects", "making sales presentations", "negotiating contracts", and "closing deals" are all part of a single **Business Process** called "**Sales**". -- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Good Workflow Management begins by identifying your business processes and mapping out their sequence. Thereafter, you need to answer five key questions per task: - - - - -