Chapter 8 Structuring Organizations for Today's Challenges PDF

CHAPTER 8 Structuring Organizations for Today’s Challenges McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.  LEARNING OBJECTIVES 1. Outline the basic principles of organization management. 2. Compare the...

CHAPTER 8 Structuring Organizations for Today’s Challenges McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.  LEARNING OBJECTIVES 1. Outline the basic principles of organization management. 2. Compare the organizational theories of Fayol and Weber. 3. Evaluate the choices managers make in structuring organizations. 4. Contrast the various organizational models. 5. Identify the benefits of inter-firm cooperation and coordination. 6. Explain how organizational culture can help businesses adapt to change. 8-2  REORGANIZATION is for LO 8-1 EVERYONE 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. 8-3 STRUCTURING an ORGANIZATION LO 8-1 Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures Adjust to new realities 8-4 THE CHANGING ORGANIZATION LO 8-2 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. 8-5  PRODUCTION CHANGED LO 8-2 ORGANZIATION DESIGN Mass production of goods led to complexities in organizing businesses. Economies of Scale -- Companies can reduce their production costs by purchasing raw materials in bulk. The average cost of goods decreases as production levels rise. 8-6  FAYOL’S PRINCIPLES LO 8-2 Unity of command Degree of centralization Hierarchy of authority Clear communication Division of labor channels Subordination of Order individual interests to Equity the general interest Esprit de corps Authority 8-7  ORGANIZATIONS BASED on LO 8-2 FAYOL’S PRINCIPLES Organizations in which employees have no more than one boss; lines of authority are clear. Rigid organizations that often don’t respond to customers quickly. 8-8  WEBER’S PRINCIPLES LO 8-2 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 8-9  HIERARCHIES and COMMAND LO 8-2 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. 8-10  ORGANIZATIONAL CHARTS LO 8-2 Organization Chart -- A visual device that shows relationships among people and divides the organization’s work; it shows who reports to whom. 7-11 TYPICAL ORGANIZATION CHART LO 8-2 8-12 BUREAUCRATIC ORGANIZATIONS LO 8-2 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. Bureaucracies can annoy customers. 8-13  CENTRALIZATION or LO 8-3 DECENTRALIZATION? Centralized Authority -- When decision-making is concentrated at the top level of management. Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters is. 8-14  SPAN of CONTROL LO 8-3 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. 8-15 ORGANIZATIONAL STRUCTURES LO 8-3 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. 8-16 FLAT ORGANIZATIONAL LO 8-3 STRUCTURE 8-17 ADVANTAGES and DISADVANTAGES of LO 8-3 the DIFFERENT SPANS of CONTROL 8-18  DEPARTMENTALIZATION LO 8-3 Departmentalization -- Divides organizations into separate units. Workers are grouped by skills and expertise to specialize their skills. 8-19  ADVANTAGES of LO 8-3 DEPARTMENTALIZATION 1) Employees develop skills and progress within a department as they master skills. 2) The company can achieve economies of scale. 3) Employees can coordinate work within the function and top management can easily direct activities. 8-20  DISADVANTAGES of LO 8-3 DEPARTMENTALIZATION 1) Departments may not communicate well. 2) Employees may identify with their department’s goals rather than the organization’s. 3) The company’s response to external changes may be slow. 4) People may not be trained to take different managerial responsibilities, instead they become specialists. 5) Department members may engage in groupthink and may need outside input. 8-21 WAYS to DEPARTMENTALIZE LO 8-3 8-22 WAYS to DEPARTMENTALIZE LO 8-3 8-23  FOUR WAYS to STRUCTURE an LO 8-4 ORGANIZATION 1. Line Organizations 2. Line-and-Staff Organizations 3. Matrix-Style Organizations 4. Cross-Functional Self- Managed Teams 8-24  LINE ORGANIZATIONS LO 8-4 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. 8-25  LINE PERSONNEL LO 8-4 Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees. Line personnel have authority to make policy decisions. 8-26  STAFF PERSONNEL LO 8-4 Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees. 8-27 SAMPLE LINE-and-STAFF LO 8-4 ORGANIZATION 8-28  MATRIX ORGANIZATIONS LO 8-4 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. Emphasis is on product development, creativity, special projects, communication and teamwork. 8-29 SAMPLE MATRIX LO 8-4 ORGANIZATION 8-30  ADVANTAGES of the LO 8-4 MATRIX STYLE 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. 8-31  DISADVANTAGES of the LO 8-4 MATRIX STYLE 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. 8-32  CROSS-FUNCTIONAL LO 8-4 SELF-MANAGED TEAMS Cross-Functional Self-Managed Teams -- Groups of employees from different departments who work together on a long-term basis. 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. 8-33  GOING BEYOND LO 8-4 ORGANIZATIONAL BOUNDARIES Cross-functional teams work best when the voice of the customer is heard. Teams that include customers, suppliers and distributors go beyond organizational boundaries. Government coordinators may assist in sharing market information beyond national boundaries. 8-34  BUILDING SUCCESSFUL TEAMS LO 8-4 Important Conditions for Small Teams Clear purpose Clear goals Correct skills Mutual accountability Shift roles when appropriate Source: CIO Magazine, www.cio.com, accessed November 2014. 8-35  REAL-TIME BUSINESS LO 8-5 Networking -- Using communications technology to link organizations and allow them to work together. Most companies are no longer self-sufficient; they’re part of a global business network. Real Time -- The present moment or actual time in which something takes place. 8-36  TRANSPARENCY and VIRTUAL LO 8-5 CORPORATIONS Transparency -- When a company is so open to other companies that electronic information is shared as if the companies were one. Virtual Corporation -- A temporary networked organization made up of replaceable firms that join and leave as needed. 8-37 A VIRTUAL CORPORATION LO 8-5 8-38  CUTTING BACK WHILE CUTTING COSTS Hiring workers is a major expense for small business owners. This has led to more offshore outsourcing. The increase can be partly attributed to the presence of online job marketplaces like ODesk. 8-39  BENCHMARKING and LO 8-5 CORE COMPETENCIES Benchmarking -- Compares an organization’s practices, processes and products against the world’s best. Core Competencies -- The functions an organization can do as well as or better than any other organization in the world. K2 Skis researched other companies’ practices in order to create the best possible skis and snowboards. 8-40  WHEN OPEN COMMUNICATION SHOULD NOT BE SO OPEN The blending of mobile technology and work has been helpful to business. However, it also has encroached on the traditional work-life boundaries. Over 1/3 of surveyed employees responded that receive work- related emails after hours, many complain it affects quality of life. 8-41  RESTRUCTURING LO 8-5 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. The manager’s job is to assist and support frontline workers, not boss them. 8-42 TRADITIONAL and INVERTED LO 8-5 ORGANIZATIONS 8-43  ORGANIZATIONAL CULTURE LO 8-6 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. 8-44  FORMAL ORGANIZATION LO 8-6 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. 8-45  INFORMAL ORGANIZATION LO 8-6 Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships. Informal organization helps foster camaraderie and teamwork among employees. 8-46  LIMITATIONS of INFORMAL LO 8-6 ORGANIZATIONS The informal system is too unstructured and emotional on its own. Informal organization may also be powerful in resisting management directives. 8-47