Unit 4 - Organizing & Controlling PDF

8-1 Unit 4 Organizational Structure Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-2 Designing Organizational Structure ⚫Organizing: the process by which managers est...

8-1 Unit 4 Organizational Structure Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-2 Designing Organizational Structure ⚫Organizing: the process by which managers establish working relationships among employees to achieve goals. ◼ Organizational Structure: formal system of task & reporting relationships showing how workers use resources. ◼ Organizational design: managers make specific choices resulting in a given organizational structure. ⚫Successful organizational design depends on the organization’s unique situation. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-3 Factors Affecting Organizational Design Figure 8.1 Environment Determine design Strategy or organizational Technology structure Human Resources Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-4 What is Organizing? ⚫Definition: Organizing is the process of arranging resources and tasks to achieve the organization’s objectives. ⚫Purpose: Ensures efficient resource use, clarifies roles, and enables smooth work flow. ⚫Key Goal: Facilitate coordination and ensure that all parts of the organization work toward common objectives. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-5 The Importance of Organizing 1. Establishes a clear structure and hierarchy 2. Assigns tasks and responsibilities to individuals and teams 3. Creates efficient communication channels 4. Reduces duplication of work and resource waste 5. Aligns individual efforts with organizational goals Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-6 Organizational Structure Types 1. Functional Structure: Groups based on functions, like Marketing, HR, and Finance. 2. Divisional Structure: Organizes by product lines, geographic regions, or markets. 3. Matrix Structure: Combines functional and divisional structures, with dual reporting lines. 4. Network Structure: Focuses on core functions and outsources non-core activities Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-7 Determinants of Structure The environment: The quicker the environment changes, the more problems face managers. ◆ Structure must be more flexible when environmental change is rapid. ◼ Usually need to decentralize authority. Strategy: Different strategies require the use of different structures. ◆ A differentiation strategy needs a flexible structure, low cost may need a more formal structure. ◆ Increased vertical integration or diversification also requires a more flexible structure. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-8 Determinants of Structure ◼ Technology: The combination of skills, knowledge, tools, equipment, computers and machines used in the organization. ◆ More complex technology makes it harder for managers to regulate the organization. Technology can be measured by: ◼ Task Variety: new problems a manager encounters. ◼ Task Analyzability: programmed solutions available to a manager to solve problems. ◆ High task variety and low analyzability present many unique problems to managers. ◼ Flexible structure works best in these conditions. ◆ Low task variety and high analyzability allow managers to rely on established procedures. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-9 Technology & People Small Batch Technology: produces small quantities of one-of-a-kind products. ◆ Based on the skills of the workers who need a flexible structure. Mass Production Technology: automated machines make high volumes of standard products. ◆ Workers perform repetitive tasks so a formal structure works well. Continuous Process Technology: totally mechanized systems of automatic machines. ◆ Workers must watch for unexpected problems and react quickly. A flexible structure is needed here. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-10 Determinants of Structure Human Resources: the final factor affecting organizational structure. ◆ Higher skilled workers who need to work in teams usually need a more flexible structure. ◆ Higher skilled workers often have professional norms (CPA’s, physicians). Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-11 Job Design ⚫Job Design: group tasks into specific jobs. ◆ Results in a division of labor between workers that is effective and efficient. ◼ Job simplification: reduction of the tasks each worker performs. ◆ Too much and boredom results. ◼ Job enlargement: increase tasks for a given job to reduce boredom. ◼ Job enrichment: increases the degree of responsibility a worker has over a job. ◆ can lead to increased worker involvement. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-12 Job Characteristics Model Figure 8.2 Skill Variety Meaningfulness Task Identity of work Task Significance Responsibility High: Autonomy for Work Motivation Outcomes Performance Satisfaction Knowledge of Feedback results of work Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-13 Job Characteristics Model Jobs have five characteristics describing extent of: – Skill variety: employee uses a wide range of skills – Task identity: worker involved in all tasks of job from beginning to end of the production process – Task significance: worker feels the task is meaningful to organization. – Autonomy: employee has freedom to schedule tasks and carry them out. – Feedback: worker gets direct information about how well the job is done. These affect the motivation, satisfaction and performance of employees. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-14 Grouping Jobs into Functions ⚫Once tasks are grouped into jobs, managers must decide how to group jobs together. ◼ Function: people working together with similar skills, tools or techniques to perform their jobs. ◆ Functional structure consists of departments such as marketing, production, and finance. ◼ Workers can learn from others doing similar tasks. Pros ◼ Easy for managers to monitor and evaluate workers. ◼ Hard for one department to communicate with others. Cons ◼ Managers can become preoccupied with their department and forget the firm Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-15 A Sample of Pier 1’s Functional Structure Figure 8.3 Clark Johnson CEO Exec. V.P. Senior V. P. Senior V.P. Finance & Admin. Stores Logistics V.P. Tax V.P. Controller V.P. Distribution V.P. MIS Director Corp. Planning Director Transportation Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-16 Divisional Structures ⚫A division is a collection of functions working together to produce a product. ◆ Divisions create smaller, manageable parts of a firm. Divisions develop a business-level strategy to compete. A division has marketing, finance, and other functions. Functional managers report to divisional managers who then report to corporate management. ◼ Product structure: divisions created according to the type of product or service. ◼ Geographic structure: divisions based on the area of a country or world served. ◼ Market structure: divisions based on the types of customers served. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-17 Product Structure Figure 8.4a CEO Corporation Corporate Managers Washing Machine Lighting Television Division Division Division Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-18 Geographic Structure Figure 8.4 b CEO Corporation Corporate Managers Northern Western Southern Eastern Region Region Region Region Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-19 Market Structure Figure 8.4c CEO Corporation Corporate Managers Large Business Small Business Educational Individual Customers Customers Institutions Customers Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-20 Global Structures ⚫When managers find different problems or demands across the globe, global solutions are needed. ◼ Global geographic structure: different divisions serve each world region. ◆ For customer needs that vary between regions. ◼ Global product structure: Customers in different regions buy similar products so firms keep most functional work at home and set up a division to market product abroad. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-21 Matrix & Product Teams ◼ Matrix structure: managers group people by function and product teams simultaneously. ◆ Results in a complex network of reporting relationships. ◆ Very flexible and can respond rapidly to change. ◆ Each employee has two bosses which can cause problems. ◼ Functional manager gives different directions than product manager and employee cannot satisfy both. ◼ Product Team Structure: no 2-way reporting and the members are permanently assigned to the team and empowered to bring a product to market. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-22 Matrix Structure Figure 8.7a CEO Func. Managers Sales Design Production Product Team Managers team A Product team B Product Team Product team C = two boss employee Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-23 Product Team Structure Figure 8.7b CEO Func. Managers Sales Design Production Manufacturing Manufacturing Manufacturing = Product Team Manager = Team member Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-24 Hybrid Structures ⚫Many large organizations have divisional structures where each manager can select the best structure for that particular division. ◼ One division may use a functional structure, one geographic, and so on. ⚫This ability to break a large organization into many smaller ones makes it much easier to manage. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-25 Coordinating Functions ⚫To ensure sufficient coordination between functions, managers delegate authority. ◼ Authority: the power vested in the manager to make decisions and use resources. ◼ Hierarchy of authority: describes the relative authority each manager has from top to bottom. ◆ Span of Control: refers to the number of workers a manager manages. ◆ Line authority: managers in the direct chain of command for production of goods or services. Example: Sales ◆ Staff authority: managers in positions that give advice to line managers. Example: Legal Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-26 Tall & Flat Organizations ◼ Tall structures have many levels of authority relative to the organization’s size. ◆ As levels in the hierarchy increase, communication gets difficult. ◆ The extra levels result in more time being taken to implement decisions. ◆ Communications can also become garbled as it is repeated through the firm. ◼ Flat structures have few levels but wide spans of control. ◆ Results in quick communications but can lead to overworked managers. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-27 Minimum Chain of Command ◼ Managers should carefully evaluate: ◆ Do they have the right number of middle managers? ◆ Can the structure be altered to reduce levels? ⚫Centralized v. Decentralized ◼ Decentralized operations puts more authority at lower levels and leads to flat organizations. ◆ Workers must be able to reach decisions. ◆ Divisions and functions can begin to lose sight of organizational goals and focus only on their small area. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-28 Integrating Mechanisms ◼ Direct contact: get managers from different divisions or functions together to solve mutual problems. ◼ Liaison Roles: one manager in each area is responsible for communication with other areas. ◼ Task Forces: temporary committees formed across divisions to solve a specific problem. ◼ Cross-functional teams: works much like a permanent task force that deals with recurring problems. ◼ Matrix structure: already contains many integrating mechanisms. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-29 Strategic Alliances ⚫Strategic alliance: a formal agreement committing two or more firms to exchange resources to produce a good. ⚫Network Structure: a whole series of strategic alliances. ◼ Created between suppliers, manufacturers, and distributors. ◆ Toyota and Honda use many such alliances. ◼ Network structures allow firms to bring resources together in a boundary-less organization. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-30 4a: Controlling Organizational Control and Culture Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-31 Organizational Control ⚫Managers must monitor & evaluate: ◼ Are we efficiently converting inputs into outputs? ◆ Must accurately measure units of inputs and outputs. ◼ Is product quality improving? ◆ Are we competitive with other firms? ◼ Are employees responsive to customers? ◆ customer service is increasingly important. ◼ Are our managers innovative in outlook? ◆ Does the control system encourage risk-taking? Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-32 Control Systems Formal, target-setting, monitoring, evaluation and feedback systems to provide managers with information to determine if strategy and structure are working effectively and efficiently. ⚫A good control system should: ◼be flexible so managers can respond as needed. ◼provide accurate information about the organization. ◼provide information in a timely manner. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-33 Three Types of Control Figure 9.1 Conversion Inputs Outputs Process Feedforward Concurrent Feedback Control Control Control (anticipate (manage problems (manage problems problems) as they occur) after they occur) Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-34 Control Types ◼ Feedforward: use in the input stage of the process. ◼ Managers anticipate problems before they arise. ◼ Managers can give rigorous specifications to suppliers to avoid quality ◼ Concurrent: gives immediate feedback on how inputs are converted into outputs. ◼ Allows managers to correct problems as they arise. ◼ Managers can see that a machine is becoming out of alignment and fix it. ◼ Feedback: provides after the fact information managers can use in the future. ◼ Customer reaction to products are used to take corrective action in the future. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-35 Control Process Steps Figure 9.2 1. Establish standards of performance, goals, or targets against which performance is evaluated. 2. Measure actual performance 3. Compare actual performance against chosen standards 4. Evaluate results and take corrective action when the standard is not being achieved. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-36 The Control Process 1. Establish standards, goals, or targets against which performance is to be evaluated. ◆ Standards must be consistent with strategy, for a low cost strategy, standards should focus closely on cost. ◼ Managers at each level need to set their own standards. 2. Measure actual performance: managers can measure outputs resulting from worker behavior or they can measure the behavior themselves. ◆ The more non-routine the task, the harder to measure. ◼ Managers then measure the behavior (come to work on time) not the output. ©The McGraw-Hill Companies, Inc., 2000 Irwin/McGraw-Hill  8-37 The Control Process 3. Compare actual performance against chosen standards. ◆ Managers must decide if performance actually deviates. ◼ Often, several problems combine creating low performance. 4. Evaluate result and take corrective action. ◼ Perhaps the standards have been set too high. ◼ Workers may need additional training, or equipment. ◆ This step is often hard since the environment is constantly changing. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-38 The Goal-Setting Process Figure 9.4 Corporate level managers set goals for individual decisions to allow organization to achieve corporate goals. Divisional managers set goals for each function to allow the division to achieve its goals. Functional managers set goals for each worker to allow the function to achieve its goals. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-39 3 Organizational Control Systems Figure 9.3 Financial Measures or performance Output Goals Control Operating budgets Direct supervision Behavior Management by Objective (MBO) Control Rules & Standard Operating Procedures Values Culture or Clan Norms Control Socialization Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-40 Output Control Systems ◼ Financial Controls are objective and allow comparison to other firms. ◆ Profit ratios--measures how efficiently managers convert resources into profits. ◼ Return on Investment (ROI) is the most common. ◆ Liquidity ratios -- measure how well managers protect resources to meet short term debt. ◼ Current & quick ratios. ◆ Leverage ratios -- show how much debt is used to finance operations. ◼ Debt-to-asset & times-covered ratios. ◆ Activity ratios -- measures how managers create value from assets. ◼ Inventory turnover, days sales outstanding. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-41 Output Control Systems ◼ Organizational Goals: after corporate financial goals are set, each division is given specific goals that must be met to attain the overall goals. ◆ Goals and thus output controls, will be set for each area of the firm. ◼ Goals are specific & difficult (not impossible) to achieve. ◼ Goal setting is a management skill developed over time. ◼ Operating budgets: a blueprint showing how managers can use resources. ◆ Managers are evaluated by how well they meet goals and stay in budget. ◼ Each division is often evaluated on its own budgets for cost, revenue or profit. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-42 Output Control Problems ◼ Managers must create output standards that motivate at all levels. ◼ Be careful of creating short-term goals that motivate managers to forget the future. ◆ It is easy to cut costs by dropping R&D now but it leads to future disaster. ◼ If standards are too high, workers may follow unethical behavior to attain them. ◆ Increase sales regardless of issues. This can be done by skipping safe production steps. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-43 Behavior Control Systems Managers must motivate and shape employee behavior to meet organizational goals. ◼ Direct Supervision: managers who directly manage workers and can teach, reward, and correct. ◆ Very expensive since only a few workers can be managed by 1 manager. ◆ Can demotivate workers who desire more autonomy. ◆ Hard to do in complex job settings. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-44 Management by Objectives ◼ Management by Objectives (MBO): evaluates workers by attainment of specific objectives. ◆ Goals are set at each level of the firm. ◆ Goal setting is participatory with manager AND worker. ◆ Reviews held looking at progress toward goals. ◼ Pay raises and promotions are tied to goal attainment. ◆ Teams are also measured in this way with goals and performance measured for the team. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-45 Bureaucratic Control ◼ Control through a system of rules and standard operating procedures (SOPs) that shape the behavior of divisions, functions, and individuals. ◆ Rules and SOPs tell the worker what to do. ◆ Standardized actions so outcomes are predictable. ◆ Still need output control to correct mistakes. ◼ Problems of Bureaucratic Control: ◆ Rules easier to make than delete. Leads to “red tape” ◆ Firm can become too standardized and not flexible. ◆ Best used for routine problems. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-46 Organizational Culture & Clan Control ◼ Organizational culture is a collection of values, norms, & behavior shared by workers that control the way workers interact with each other. ◼ Clan Control: control through the development of an internal system of values and norms. ◆ Both culture and clan control accept the norms and values as their own and then work within them. ◼ Examples include dress styles, work hours, pride in work. ◆ These methods provide control where output and behavioral control does not work. ◆ Strong culture and clan control help worker to focus on the organization and enhance its performance. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-47 Values and Norms ◼ Organizational values and norms inform workers about what goals they should peruse and how they should behave to reach these goals. ◆ Some organizations work hard to create a culture that encourages and rewards risk taking. ◼ Microsoft, Oracle seek innovation. ◆ Others, create an environment of caution. ◼ Oil refineries, nuclear power plants must focus on caution. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-48 Creating Strong Organizational Figure 9.5 Culture Values of Founder Socialization Process Organizational Culture Ceremonies & Rites Stories & Language Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-49 Organizational Culture ⚫ Founder’s values are critical as they hire the first set of managers. ◼ Founders likely hire those who share their vision. ◼ This develops the culture of the firm. ⚫ Socialization Process: newcomers learn norms & values. ◼ Learn not only because “they have to” but because they want to. ◼ Organizational behavior, expectations, and background is presented. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-50 Organizational Culture ◆ Ceremonies and Rites: formal events that focus on important incidents. ◼ Rite of passage: how workers enter firm & advance. ◼ Rite of integration: build common bonds with office parties, celebrations. ◼ Rites of enhancement: enhance worker commitment to values. Promotions, awards dinners. ◆ Stories and Language: Organizations repeat stories of founders or events. ◼ Show workers how to act and what to avoid. ◼ Stories often have a hero that workers can mimic. ◼ Most firms also have their own jargon that only workers understand. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-51 Culture & Managerial Action: ◼ Consider the four functions of management: ◆ Planning: in innovative firms, the culture will encourage all managers to participate. ◼ Slow moving firms focus on the formal process rather than the decision. ◆ Organizing: Creative firms will have organic, flexible structures. ◼ Probably very flat with delegated authority. ◆ Leading: encourage leading by example. ◼ Top managers take risks and trust lower managers. ◆ Controlling: innovative firms choose controls that match the structure. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-52 Conclusion ⚫ Organizing is a fundamental management function that lays the groundwork for efficient operations. ⚫ By setting up a clear structure, defining roles, and coordinating tasks, organizing helps achieve the organization’s goals. ⚫ Effective organizing requires careful planning, clarity of objectives, and continuous improvement. ⚫ Ensures Achievement of Goals: Controlling is essential in management as it helps ensure that organizational objectives are met by monitoring performance and making necessary adjustments. ⚫ Improves Efficiency and Accountability: Through regular performance evaluations and corrective actions, controlling enhances operational efficiency and holds employees accountable for their roles. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000  8-53 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000