Structuring Organizations for Today’s Challenges (BADM 101) PDF

Chapter 8 Structuring Organizations for Today’s Challenges Dr. Rania El Garem ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior writt...

Chapter 8 Structuring Organizations for Today’s Challenges Dr. Rania El Garem ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.  Chapter Content 1- Organizing for Success Building an Organization from the Bottom Up 2- The Changing Organization A- The development of Organizational Design B-Turning Principles into Organizational Design 3- Decisions to Make in Structuring Organizations A- Centralization versus Decentralization. B- Span of Control. C- Tall versus Flat Organizational Structures. D- Departmentalization. 4- Adapting to Change A- Restructuring for Empowerment B- Creating a Change-Oriented Organizational Culture What is the first step in starting a new business?  1- Organizing for Success 1- Division of Labor: Organizing, or structuring, begins with determining what work needs to be Building an done (Cooking, Serving Organization from Meals, Cleaning, the Bottom Up Purchasing) Then dividing up the tasks among the 4 partners: this is Organization of A called a division of labor. Small Restaurant One of you might have a Business special talent for the cooking, while another is better at serving the meals. 2- JobSpecialization The success of a firm often depends on management's ability to identify each worker's strengths and assign the right tasks to the right person. Many jobs can be done quickly and well when each person specializes. Dividing tasks into smaller jobs is called job specialization. For example, you might divide the tasks into the chefs, seating customers, taking orders, serving meals, preparing drinks. 3- Departmentalization: if your business is successful, you'll probably hire more workers to help. You might organize them into teams or departments to do the various tasks. So, you will adopt functional departmentalization. Lokali is divided into departments such as the kitchen, front-of-house, and administrative departments (e.g., accounting and human resources). Each department focuses on specific functions and tasks, ensuring efficient coordination and specialization within those areas.  If you are really successful over time, you might hire an accountant to keep records, various people to handle advertising, and a crew to maintain the equipment.  You can see how your business might evolve into a company with several departments: production (cooking and everything related to that), marketing, accounting, and maintenance.  Assigning responsibility & authority to people so you can control the whole process (POS). 4- Allocating Resources:  This includes allocating funds for purchasing ingredients,  Maintaining kitchen equipment,  Renovating the dining area,  Investing in employee training and development.  By allocating resources strategically, the restaurant ensures the availability of necessary tools and materials to deliver high-quality food and service. 5- Assigning Specific Tasks:  Lokali assigns specific tasks to employees based on their roles and expertise.  For example, the head chef is responsible for menu planning and recipe development, while line cooks are assigned to prepare specific dishes or stations.  This assignment of tasks ensures efficiency, accountability, and quality control within the kitchen. 6- Establishing Procedures:  Lokali establishes standard operating procedures (SOPs) to maintain consistency and efficiency.  SOPs cover various aspects, including food preparation, quality control, customer service protocols, opening and closing procedures, and health and safety guidelines.  These procedures provide clear guidelines for employees, enabling them to perform their tasks consistently and maintain the restaurant's standards. 7- Developing an Organization Chart Lokali has an organization chart that depicts the hierarchical structure of the restaurant. It typically includes positions such as the owner/manager at the top, followed by department heads (e.g., head chef, front-of-house manager), and then the various roles within each department. The organization chart provides a visual representation of reporting relationships and helps employees understand the chain of command.  8- Monitoring The Environment  Lokali monitors its environment to stay informed about industry trends, customer preferences, and regulatory changes.  This includes tracking customer feedback, conducting market research, attending industry events, and staying updated on food safety regulations.  By monitoring the environment, the restaurant can adapt its strategies and operations to remain competitive and meet customer expectations.  1- Organizing for Success Building an Organization from the Bottom Up 1. Create a division of labor. 2. Divide tasks through job specialization. 3. Set up teams or departments (departmentalization). 4. Allocate resources. 5. Assign specific tasks. 6. Establish procedures. 7. Develop an organization chart. 8. Monitor the Environment. 1-The above- mentioned principles are for which size of organizations?  A- Small  B-Medium  C-Large  D-All size of Organizations 2-Which organizational concept focuses on dividing tasks among different roles?  a) Division of labor  b) Job specialization  c) Departmentalization  d) Allocating resources 3-Which organizational concept involves assigning specific responsibilities to employees based on their roles?  a) Division of labor  b) Job specialization  c) Departmentalization  d) Establishing procedures 4-Which organizational concept refers to dividing the restaurant into functional areas like kitchen and front-of- house?  a) Division of labor  b) Job specialization  c) Departmentalization  d) Allocating resources 5-Which organizational concept involves allocating funds for purchasing ingredients and maintaining kitchen equipment?  a) Division of labor  b) Job specialization  c) Departmentalization  d) Allocating resources 6-Which organizational concept focuses on creating standard operating procedures for consistent performance?  a) Assigning specific tasks  b) Establishing procedures  c) Developing an organization chart  d) Monitoring the environment 7-Which organizational concept provides a visual representation of reporting relationships within the restaurant?  a) Assigning specific tasks  b) Establishing procedures  c) Developing an organization chart  d) Monitoring the environment THINKING ACTIVITY what are the reasons behind losing business to competitors Nowadays?  2- THE CHANGING ORGANIZATION This change is due to the evolving business environment: more global competition, a declining economy, faster technological change, and pressure to preserve the natural environment. In addition to the change in customer expectations. Consumers today expect high-quality products and fast, friendly service—at a reasonable cost. THINKING ACTIVITY Now, what would you do FIRST if you began losing business to your competitors? 2- THE CHANGING ORGANIZATION(Cont.) Managing change, then, has become a critical managerial function. It sometimes requires changing the whole organizational structure. For example, in 2015 technology giant Google restructured its organization into a conglomerate called Alphabet. Alphabet consists of independent units including Google (the search engine and related businesses such as Gmail and YouTube), Calico (health care), Verily (“smart” contact lens), Deep Mind (artificial intelligence), and several others. These smaller units have more flexibility to listen to customers & adapt accordingly. What is the Key to the Success in Business? Turning Principles into The Key to success is organization Remaining Flexible al Design enough to adapt to the changing times. 25 It means going back to basic organizational principles & Rebuilding the firm on a sound foundation 2- THE CHANGING ORGANIZATION(Cont.)  Many organizations in the past were designed to facilitate mangement rather to please the customer.  Companies designed many rules & regulations to give managers control over employees; this is what we call bureaucracy.  Now, in order to understand the present & the future we have to look at the past. Fayol’s Principles of Organization (1919) 1. Unity of command 2. Hierarchy of authority 3. Division of labor 4. Subordination of individual interests to the general interest 5. Authority 6. Degree of centralization 7. Clear communication channels 8. Order 9. Equity 10. Esprit de corps Rigid organizations that often don’t respond to customers quickly.  A- The Development of Organizational Design  In the past, most businesses were rather small, producing few number of products and services & organizing workers was very fairly easy.  Not until the 1900s and the introduction of mass production (methods for efficiently producing large quantities of goods) did production processes and business organization become so complex. Business growth led to 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. However, Mass production of goods led to complexities in organizing businesses.  Max Weber and Organizational Theory One of the best-known ways of structuring is the bureaucratic form (King and Lawley, 2013). 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 was in favor of Bureaucracy  Clearly established rules and guidelines by managers to be followed precisely.  It can take weeks or months to have information passed down to lower-level employees.  Bureaucracies can annoy customers.  B- Turning Principles into Organizational Design Managers began to design organizations to 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.  Organization chart A visual device that shows relationships among people and divides the organization’s work. It shows who reports to whom.  Typical Organization Chart Bureaucracy: An Organization with many layers of managers who set rules & regulations & oversee all decisions.  3- Decisions to Make in Structuring Organizations A- Centralization versus Decentralization. B- Span of Control. C- Tall versus Flat Organizational Structures. D- Departmentalization.  A- Centralized authority  Centralization refers to the concentration of decision-making authority at the top levels of an organization's hierarchy.  In a centralized structure, key decisions are made by a few individuals or a central governing body.  This structure offers consistency, control, and uniformity in decision-making, as well as efficient resource allocation.  An example of a successful international company that adopts centralization is Apple Inc. Under the leadership of Steve Jobs, Apple maintained a highly centralized decision-making structure, with Jobs having the final say on major strategic decisions.  A- Decentralized  authority Decentralization, on the other hand, involves the distribution of decision-making authority throughout an organization.  In a decentralized structure, decision-making is pushed down to lower levels, empowering employees and enabling faster responses to local needs.  Decentralization promotes autonomy, innovation, and employee engagement.  An example of a successful international company that embraces decentralization is Toyota. Toyota's production system, known as the Toyota Way, encourages employees at all levels to actively contribute to continuous improvement and decision-making processes. Advantages and Disadvantages of Centralized versus Decentralized Authority B- Choosing the Appropriate Span of Control Describes the optimum number of subordinates a manager supervises or should supervise. What is the “right” span of control? When work is standardized, broad spans of control are possible. At lower levels, where work is standardized, it's possible to implement a wide span of control (15 to 40 workers). Ex: a supervisor can be responsible for 20 workers or more assembling computers.  The appropriate span narrows at higher levels of the organization. The appropriate span gradually narrows at higher levels of the organization, because work becomes less standardized and managers need more face-to-face communication. The trend today is to expand the span of control as organizations adopt empowerment, reduce the number of middle managers and hire more talented & better educated lower-level employees. IT also allows managers to handle more information, so the span can be broader still.  Examples Wide span of Narrow span of control control  For example, Google, a multinational technology company, embraces a wide  Phyzer, the span of control by empowering teams pharmaceutical and minimizing company, has17 layers of layers of management to management. foster a fast-paced and innovative work environment. C- Choosing between Tall and Flat Organizational Structures Tall organization structure — An organizational structure in which the pyramidal organization chart would be quite tall because of the various levels of management.(Narrow Span of Control: Few people reported to each manager) Flat organization structure — An organizational structure that has few layers of management and a broad span of control. (Broad Span of Control: Many people reported to each manager) 43 Advantages and Disadvantages of a Narrow versus a Broad Span of Control  Flat companies Flat companies are exactly that...flat. Meaning there are usually no job titles, seniority, managers, or executives. Everyone is seen as equal. Referred to as self-managed organizations. It is not practical or scalable for larger organizations when we think about the future of work. Smaller and some medium size companies might be able to operate in this type of an environment but when you get to organizations with thousands of employees then it becomes challenging.  D- Departmentalization Departmentalization : Divides the organization into separate units. The traditional way to departmentalize is by Function-Design, production, marketing & accounting example Procter & Gamble. It groups workers according to their skills, expertise, or resource use so that they can specialize and work together more effectively. It may also save costs and thus improve efficiency.  Weighing the advantages & Disadvantages of Departmentalization Advantages: 1- Employees can develop skills in depth & progress within a department as they master more skills. 2- The company can achieve economies of scale by centralizing all the resources it needs & locate various experts in that area. 3- Employees can coordinate work within the function, and top management can easily direct activities.  Disadvantages: 1. Departments may not communicate well. For example, production may be so isolated from marketing that it does not get needed feedback from customers. 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 (they think alike) and may need input from outside to become more creative. Which company embraces a wide span of a) Apple control and Inc. a flatter organization al structure? b) Toyota Which organizational structure has more layers of management and a longer chain of command?  a) Tall structure  b) Flat structure Which type of departmentaliza tion groups employees based on their specialized functions or skills?  a) Functional  b) Product Which organizational structure promotes centralized decision-making? A) CENTRALIZATION B) DECENTRALIZATION  After the phenomenal and long-lived success of its Windows operating system and suite of Office products, Microsoft was struggling to write its second act.  The gigantic company was stagnant with internal wars between major business units that often viewed each other more as competitors than partners in the same company.  with Google becoming dominant online and Apple owning the market for mobile products, Microsoft struggled to keep up, with unevenly executed new products in which even the company soon lost interest.  http://www.businessinsider.com/satya-nadella-achieved-one-microsoft-vision-2016-1 In 2014, Satya Nadella undertook a M ajor Restructuring  To do away with the destructive internal competition.  Products and platforms would no longer exist as separate groups, but rather all Microsoft employees would begin focusing on a limited set of common goals including: Reinventing productivity and business processes Building the intelligent cloud platform Creating more personal computing  Nadella shook things up again  In September 2016, with the merging of the Microsoft Research Group and with about 5,000 engineers and computer scientists, its goal is to innovate in artificial intelligence across the Microsoft product line.  The Alphabet umbrella by Google  By the early 2000 Google was a phenomenal success, dominating internet search and making itself indispensable in our lives through products like Google Maps and Gmail.  Its R&D teams were seemingly interested in everything, searching for what cofounder Larry Page termed “moonshot” projects, supposedly impossible things Google engineers could perhaps make real.  Google as a company grew monstrously diverse. It was all connected, and yet not: an increasingly impossible entity to manage, with intertwining goals, teams, funds, and managers. Mindful of the troubling latter days of other once-great tech companies, Page decided it was time to deconstruct the entire thing. The Restructuring of Google Page broke up Google into its constituent parts, making each one its own company, with all of them owned by a new umbrella corporation called Alphabet. Page sits at Top the structure as CEO of Alphabet, with Google cofounder Sergei Brin as president and long-time Google exec Eric Schmidt as chairman. Each of Alphabet’s companies has its own goals and a CEO focused solely on those goals.  Page commenting on the Restructuring  “Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related. Alphabet is about businesses prospering through strong leaders and independence.”  “In the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant.” ©McGraw-Hill Education.  What they got right  Page let everyone at Google in on his thinking when the launch of Alphabet was announced, explaining that the reorganization would free the employees to concentrate more productively and happily on their own mission without having to be concerned about Google overall.  With each company responsible for its own expenditures and income, they’d also enjoy a new sense of cause and effect that could make innovating more meaningful. ©McGraw-Hill Education.  British Airways Restructures its Entire Organization  British Airlines is the largest airline of UK. It was created in 1974 from four other companies — BEA, BOAC, Northeast Airlines, and Cambrian Airlines — taking to the sky with 215 aircraft supported by 50,000 employees, a level of staffing that was, even then, viewed as oversized.  The oil crises of the 1990s shrunk the airlines’ customer base, and its huge staff resulted in massive financial losses. The company soon developed a reputation for terrible service as a result. ©McGraw-Hill Education.  What they did?  To increase profits, Sir John King decided to restructure the entire organization by reducing its workforce from 59,000 to 39,000, eliminating unprofitable routes, and modernizing the fleet. He repaired the airline’s image by bringing in a new marketing expert.  Within 10 years, the airline reported the highest profits in its industry: $284 million. Check more management changes in the history of BA on https://www.slideshare.net/MilesAgbanrin/managing-change-at-british-airways-an-intro duction ©McGraw-Hill Education.  what they got right?  Before King began announcing layoffs, he explained his reasons for the restructuring to the entire company to prepare them for the upcoming change.  Without his transparency, British Airways could have experienced employee backlash and negative press around all the layoffs.  But the chairperson always communicated honestly and frequently to manage the change. ©McGraw-Hill Education.  What is common between all these Examples? ©McGraw-Hill Education.  Reorganization Done Right  These successful examples of organizational change are instructive and even inspiring.  They show how courage and thoughtful planning can be rewarded when you put your employees first and help them through a period of upheaval by sharing with them your vision for their new roles and the future of the company.  What’s the secret to successful organizational change? Three words: communicate, communicate, communicate. ©McGraw-Hill Education.  4- Adapting to Change  Once you have formed an organization, you must be prepared TO ADAPT THE STRUCTURE TO CHANGES in the market. That is not always easy to do.  Over time, an organization can get stuck in its ways. Employees have a tendency to say:  “That is the way we have always done things. If it is not broken, don’t fix it.” LO 8-5  Adapting to Change A- Restructuring for Empowerment Restructuring Redesigning an organization so that it can more effectively and efficiently serve its customers. Inverted organization An organization that has contact people at the top (Nurses) and the CEO at the bottom of the organization chart. Management layers are few & the manager’s job is to assist and support frontline people, not boss them around. Comparison of an Inverted Organizational Structure & a Traditional Organizational Structure  B- Creating a change –oriented organizational Culture  This means frontline people have to be better educated, better trained, and better paid than in the past.  It takes a lot of trust for top managers to implement such a system—  But when they do, the payoff in customer satisfaction and profits is often well worth the effort  Organizational culture  Is the widely shared values within an organization that foster unity and cooperation to achieve common goals.  Usually the culture of an organization is reflected in its stories, traditions, and myths.  The Ritz-Carlton  Peter Shankman, an entrepreneur and marketing guru, related how a maid at the Ritz-Carlton Hotel noticed he was low on toothpaste and bought him a new tube. He was so impressed that he tweeted a picture of the note she had written.  The Ritz later told him they had tracked “thousands of dollars” of reservations back to his tweet.  The Ritz, know that Maids, and all other Ritz-Carlton Front Line Employees, are empowered to spend up to $2000 to “improve a guest’s experience, handle a complaint or fix a problem.” Head of human resources, Randy McDonald gets it, saying “Trust people at the lower levels. They live it. They understand it.”  Rooftop meetings, friendly coworkers and a team-oriented environment in which each person is motivated by the company’s goals have inspired that praise.  Employees of Twitter can also expect free meals at the San Francisco headquarters.  Along with yoga classes and unlimited vacations for some. These and many other perks are not unheard of in the startup world.  Google has been synonymous with culture for years, and sets the tone for many of the perks and benefits startups are now known for.  Free meals, employee trips and parties, financial bonuses, gyms, a dog-friendly environment.  Googlers are known to be driven, talented and among the best of the best. Kahoot On-line Game QUESTIONS THANK YOU