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  1. Chapter 8 Organization Structure

  2. Fundamentals Of Organizing • Organization chart • depicts the positions in the firm and how they are arranged • provides a picture of the reporting structure • conveys the following information • the boxes represent different work • the titles in the boxes represent the work performed by each unit • reporting and authority relationships indicated by solid lines showing superior-subordinate connections • levels of management indicated by the number of horizontal layers in the chart • all persons or units that are on the same rank and report to the same person are on one level

  3. Conventional Organization Chart President Finance R&D Marketing Personnel Chemical Products Metal Products Personnel Finance Personnel Finance Manufacturing Sales Manufacturing Sales

  4. Fundamentals Of Organizing (cont.) • Differentiation • means that the organization is comprised of many different units that work on different kinds of tasks • aspect of the organization’s internal environment • division of labor - assignment of different tasks to different people or groups • specialization - process in which different individuals and units perform different tasks • differentiation is high when there are many subunits and many kinds of specialists who think differently

  5. Fundamentals Of Organizing (cont.) • Integration • degree to which differentiated units work together and coordinate their efforts • all the specialized tasks in an organization cannot be performed completely independently • coordination - procedures that link the various parts of the organization to achieve the organization’s overall mission • any job activity that links different work units performs an integrative function • the more a firm is differentiated, the greater the need for integration among the units

  6. The Vertical Structure Corporate governance role of a corporation’s executive staff and board of directors in ensuring that the firm’s activities meet the goals of the firm’s stakeholders Authority in organizations authority - the legitimate right to make decisions and to tell other people what to do resides in positions rather than people in private business enterprises, owners have ultimate authority traditionally authority has been the primary means of running an organization

  7. Authority in organizations (cont.) board of directors - elected by the stockholders to run the organization led by a chair performs three functions selecting, assessing, rewarding, and perhaps replacing the CEO determining the firm’s strategic direction and reviewing financial performance assuring ethical, socially responsible, and legal conduct inside directors - the firm’s top managers who sit on the board outside directors - are likely run other companies successful boards tend to be active, critical participants in determining company strategies The Vertical Structure (cont.)

  8. The Vertical Structure (cont.) Authority in organizations (cont.) chief executive officer(CEO) - occupies the top of the organizational pyramid authority officially vested in the board of directors is assigned to the CEO CEO personally accountable to the board and owners top management team - typically comprised of the CEO, president, chief operating officer, chief financial officer, and other key executives frequently meet with the CEO to make important decisions

  9. The Vertical Structure (cont.) Hierarchical levels hierarchy - the authority levels of the organizational pyramid top management - strategic managers in charge of the entire organization middle management - in charge of plants or departments lowest levels - made up of lower management and workers called the operational level of the organization trend in the U.S. is to reduce the number of hierarchical layers subunits - subdivisions of an organization subunits with fewer layers have higher operating efficiency

  10. The Vertical Structure (cont.) Span of control the number of subordinates who report directly to a manager narrow spans produce tall organizations wide spans produce flat organizations

  11. The Vertical Structure (cont.) Delegation assignment of authority and responsibility to a subordinate can occur between any two individuals in any type of structure with regard to any task responsibility - assignment of a task that an employee is supposed to carry out should delegate enough authority to complete the task accountability - expectation that employees perform a job, take corrective action when necessary, and report upward on the status and quality of their performance managers remain responsible and accountable for their own actions and those of their subordinates

  12. The Vertical Structure (cont.) Delegation (cont.) advantages of delegation permits getting work done through others manager saves time manager frees herself/himself to devote energy to other important, higher-level activities provides subordinates with more important jobs provides subordinates with the opportunity to develop new skills and to demonstrate potential from the organization’s perspective, jobs are done more efficiently and cost-effectively

  13. Steps In Effective Delegation Define the goal succinctly Select the person for the task Solicit the subordinate’s view about suggested approaches Give the subordinate the authority, time, and resources (people, money,equipment) to perform the assignment Schedule checkpoints for reviewing progress Follow through by discussing progress at appropriate intervals

  14. The Vertical Structure (cont.) Decentralization result of the delegation of responsibility and authority centralized organization - high-level executives make most decisions and pass them down to lower levels for implementation decentralized organization - lower-level managers make important decisions ideally, decision making should occur at the level of the people who are most directly affected and have the most intimate knowledge about the problem most U.S. executives understand the importance of decentralizing decision making to the point of the action

  15. The Horizontal Structure Basic concepts departmentalization - subdividing the organization into smaller subunits line departments - have responsibility for the principle activities of the firm deal directly with the organization’s primary goods and services line managers typically have: substantial authority and power ultimate responsibility for major operating decisions accountability for “bottom-line” results staff departments - provide specialized support for line units moving toward a role focused on strategic support and expert advice

  16. The Horizontal Structure (cont.) Functional organization jobs (and departments) are specialized and grouped according to business functions and the skills they require e.g., production, marketing, R&D, human resources, and finance at the most basic level, functional structure is organized around the company’s value chain value chain - sequence of activities that flow from raw materials to the delivery of a product or service common in both large and small organizations may be most appropriate in rather simple, stable environments

  17. Functional organization (cont.) advantages of functional structure include: economies of scale can be realized effective environmental monitoring performance standards are better maintained greater opportunity for specialized training and in-depth skill development technical specialists are relatively free of administrative work decision making and lines of communication are simple and clearly understood The Horizontal Structure (cont.)

  18. The Horizontal Structure (cont.) Functional organization (cont.) disadvantages of functional structure people may care more about their own function than about the company as a whole may lose focus on overall product quality and customer satisfaction managers do not develop knowledge of the other areas of the business become specialists, not generalists conflicts arise among functions and communications suffer accordingly high differentiation may create barriers to coordination across functions

  19. Functional Structure President Staff departments Procurement Information technology services Human resources Inbound logistics Operations Outbound logistics Marketing and sales Service Line departments

  20. The Horizontal Structure (cont.) Divisional organization units grouped around products, customers, or geographic regions groups all functions into a single division duplicates each function across all of the divisions separate divisions may act almost as separate businesses work autonomously to achieve the goals of the organization several ways to create divisional structure

  21. Examples Of Functional And Divisional Organizations Functional organization Divisional organization A central purchasing department Separate companywide marketing, production, design, and engineering departments A central-city health department Plantwide inspection, maintenance, and supply departments A university statistics department teaches statistics for the entire university Each division has its own purchasing unit Each product group has experts in marketing, design, production, and engineering The school district and the prison have their own health units Production Team Y does its own inspection, maintenance, and supply Each department hires statisticians to teach its own students

  22. Divisional organization (cont.) product divisions - all functions that contribute to a given product are organized under one manager advantages information needs are managed more easily people have full-time commitment to a particular product line task responsibilities are clear people receive broader training flexibility of structure better suits it for unstable environments disadvantages difficult to coordinate across product lines managers may not acquire depth of functional knowledge duplication of effort is expensive The Horizontal Structure (cont.)

  23. The Horizontal Structure (cont.) Divisional organization (cont.) customer and geographical divisions build divisions around customer or geographical distinctions advantages can focus on customer needs can provide faster and better service disadvantage duplication of activities across many customer groups and geographic areas is expensive

  24. Geographical Organization Chairman CEO Northeast regional manager Midwest regional manager Southeast regional manager Southwest regional manager Pacific regional manager General managers for: New York Philadelphia Boston General managers for: Cleveland Chicago St. Louis General managers for: Raleigh Atlanta Orlando General managers for: Dallas Houston Albuquerque General managers for: Seattle San Francisco Los Angeles

  25. The Horizontal Structure (cont.) Matrix organization hybrid form of organization in which functional and divisional forms overlap have dual reporting relationships in which some managers report to two superiors rather than a single line of command advantages higher degree of flexibility and adaptability disadvantages violation of the unity of command principle reporting to two superiors can create confusion

  26. Matrix Organizational Structure Chairman CEO Project management Production Engineering Personnel Accounting Functional managers Project Manager A Production group Two-boss manager Engineering group Two-boss manager Personnel group Two-boss manager Accounting group Two-boss manager Project Manager B Production group Two-boss manager Engineering group Two-boss manager Personnel group Two-boss manager Accounting group Two-boss manager

  27. The Horizontal Structure (cont.) Matrix organization (cont.) matrix survival skills problems can be avoided if behavioral skills are learned particular skills needed depend on position in the matrix the matrix diamond illustrates needed skills

  28. The Horizontal Structure (cont.) Matrix organization (cont.) matrix form today - resurgence based on: pressures to consolidate costs and be faster to market need for better coordination across functions in the business need for coordination across countries in global business understanding of the matrix has increased matrix is not a structure, but a process relationships allow information to flow through the organization norms, values, and attitudes shape how people think

  29. Williamson’s Structures • Functional or U-form (Unitary) Design • Organizational members and units are grouped into functional departments such as marketing and production • Coordination is required across all departments • Design approach resembles functional departmentalization in its advantages and disadvantages

  30. Williamson’s Structures U-Form

  31. Williamson’s Structures • Conglomerate or H-form (Holding) Design • Organization consists of a set of unrelated businesses with a general manager for each business • Holding-company design is similar to product departmentalization • Coordination is based on the allocation of resources across companies in the portfolio • Design has produced only average to weak financial performance; has been abandoned for other approaches

  32. Williamson’s Structures H-Form

  33. Williamson’s Structures • Divisional or M-form (Multidivisional) Design • An organizational arrangement based on multiple businesses in related areas operating within a larger organizational framework • The design results from a strategy of related diversification • Some activities are extremely decentralized down to the divisional level; others are centralized at the corporate level • The largest advantages of the M-form design are the opportunities for coordination and sharing of resources • Successful M-form organizations can out perform U-form and H-form organizations

  34. Williamson’s Structures M-Form

  35. Davis and Lawrence • Matrix Design • An organizational arrangement based on two overlapping bases of departmentalization (e.g., functional departments and product categories) • A set of product groups or temporary departments are superimposed across the functional departments • Employees in the resulting matrix are members of both their departments and a project team under a project manager • The matrix creates a multiple command structure in which an employee reports to both departmental and project managers • A matrix design is useful when • There is strong environmental pressure • There are large amounts of information to be processed • There is pressure for shared resources

  36. Davis and Lawrence Matrix Design

  37. Davis and Lawrence • Matrix Design Advantages • Enhances organizational flexibility • Involvement creates high motivation and increased organizational commitment • Team members have the opportunity to learn new skills • Provides an efficient way for the organization to use its human resources • Team members serve as bridges to their departments for the team • Useful as a vehicle for decentralization

  38. Davis and Lawrence • Matrix Design Disadvantages • Employees are uncertain about reporting relationships • Managers may view design as an anarchy in which they have unlimited freedom • The dynamics of group behavior may lead to slower decision making, one-person domination, compromise decisions, or a loss of focus • More time may be required for coordinating task-related activities

  39. Hammer and Stanton • Hybrid Designs • An organizational arrangement based on two or more common forms of organization design • An organization may have a mixture of related divisions and a single unrelated division • Most organizations use a modified form of organization design that permits it to have sufficient flexibility to make adjustments for strategic purposes

  40. Mintzberg’s Structures • According to Henry Mintzberg the structural configuration of an organization can be differentiated by • Prime Coordinating Mechanism • Key Part of Organization • Type of Decentralization 

  41. Mintzberg’s Structures • Prime Coordinating Mechanism • Direct Supervision One individual is responsible for the work of others • Standardization of work processes The content of the work is specified or programmed • Standardization of skills Explicitly specifies the kind of training necessary to do the work • Standardization of outputs Specifies the results, or output, of the work •  Mutual adjustment Coordinates activities through informal communications

  42. Mintzberg’s Structures • Key Part of Organization • Strategic apex- Top management and its support staff • Technostructure- Analysts such as industrial engineers, accountants, planners, and human resource managers • Operating core- Workers who actually carry out the organization’s tasks • Middle line- Middle and lower-level management • Support staff- Units that provide support to the organization outside of the operating workflow (for example, legal counsel, executive dining room staff, and consultants)

  43. Mintzberg’s Structures • Types of Decentralization  • Vertical and horizontal centralization • Limited horizontal decentralization • Vertical and horizontal decentralization • Limited vertical decentralization • Selective decentralization

  44. Mintzberg’s Structures The Simple Structure The simple structure uses direct supervision as its primary coordinating mechanism, has as its most important part its strategic apex, and employs vertical and horizontal centralization. Relatively small corporations controlled by aggressive entrepreneurs, new government departments, and medium-sized retail stores are all likely to exhibit a simple structure. These organizations tend to be relatively young. The CEO (often the owner) retains much of the decision-making power. The organization is relatively flat and does not emphasize specialization. Many smaller U-form organizations are structured in this fashion. Trilogy Software would be an example of a firm using this approach.

  45. Mintzberg’s Structures The Machine Bureaucracy The machine bureaucracy uses standardization of work processes as its prime coordinating mechanism; the technostructure is its most important part; and limited horizontal decentralization is established. The machine bureaucracy is quite similar to Burns and Stalker’s mechanistic design discussed in Chapter 12 of Griffin’s Management, Seventh Edition. Examples include McDonald’s and most large branches of the U.S. government. This kind of organization is generally mature in age, and its environment is usually stable and predictable. A high level of task specialization and a rigid pattern of authority are also typical. Spans of management are likely to be narrow, and the organization is usually tall. Large U-form organizations are also likely to fall into this category.

  46. Mintzberg’s Structures The Professional Bureaucracy The third form of organization design suggested by Mintzberg is the professional bureaucracy. Examples of this form of organization include universities, general hospitals, and public accounting firms. The professional bureaucracy uses standardization of skills as its prime coordinating mechanism, has the operating core as its most important part, and practices both vertical and horizontal decentralization. It has relatively few middle managers. Further, like some staff managers, its members tend to identify more with their professions than with the organization. Coordination problems are common.

  47. Mintzberg’s Structures The Divisionalized Form The divisionalized form, Mintzberg’s fourth design, exhibits standardization of output as its prime coordinating mechanism, the middle line as its most important part, and limited vertical decentralization. This design is the same as both the H-form and the M-form described earlier. Limited and Disney are illustrative of this approach. Power is generally decentralized down to middle management—but no further. Hence each division itself is relatively centralized and tends to structure itself as a machine bureaucracy. As might be expected, the primary reason for an organization to adopt this kind of design is market diversity.

  48. Mintzberg’s Structures The Adhocracy The adhocracy uses mutual adjustment as a means of coordination, has at its most important part the support staff, and maintains selective patterns of decentralization. Most organizations that use a fully-developed matrix design are adhocracies. An adhocracy avoids specialization, formality, and unit of command. Even the term itself, derived from “ad hoc,” suggests a lack of formality. Sun Microsystems is an excellent example of an adhocracy.

  49. Mintzberg’s Structures

  50. Organizational Integration Coordination by standardization standardization - establishing common rules and procedures that apply uniformly to everyone constrains actions integrates various units by regulating what people do formalization - reliance on rules and regulations to govern how people interact should apply to most (if not all) situations most appropriate in relatively stable and unchanging situations