CHAPTER 7: ORGANIZING THE BUSINESS ENTERPRISE WHAT IS ORGANIZATIONAL STRUCTURE All businesses have common structural and operating

g components, each of which has a specific purpose Each component must fulfill its own purpose while simultaneously fitting in with the others How these components look and fit together varies from company to company Organizational Structure: the specification of the jobs to be done within a business and how those jobs relate to one another Every institution for-profit, non-profit, government agency, etc. must develop a structure that is appropriate for its own unique situation Determinants of Organization Structure: Managers should carefully assess a variety of important factors as they plan for and then create a structure that will allow their organization to function efficiently, but due to busyness in businesses, structure may also develop without much planning Many elements work together to determine an organizations structure, major ones being organizations purpose, mission, and strategy Size, technology, and changes in environmental circumstances also effect structure Even after a structure is created, it is rarely free from tinkering or outright re-creation Most organizations change their structures almost continually The Chain of Command: Most businesses prepare organization charts that illustrate the companys structure and show employees where they fit into the firms operations Look at Organization Chart Chain of Command: the reporting relationship within the company When the chain of command isnt clear, many different problems can result THE BUILDING BLOCKS OF ORGANIZATIONAL STRUCTURE The first step in developing the structure of any business, large or small, is twofold: Specialization: determining who will do what Departmentalization: determining how people performing certain tasks can best be grouped together These two tasks are the basic building blocks of all business organizations Specialization: Job Specialization: the process of identifying the specific jobs that need to be done and designating the people who will perform them Each big job is broken down into smaller components into a set of tasks to be completed by a series of individuals or machines 1. Specialization and Growth In a very small organization, owners may perform every job Job specialization is a natural part of organizational growth Not a new idea nor limited to factory work Job specialization has certain advantages individual jobs can be performed more efficiently, the jobs are easier to learn, and it is easier to replace people who have left the organization However, if job specialization is carried too far and jobs become too narrowly defined, people get bored, derive less satisfaction from their jobs, and often lose sight of how their contributions fit into the overall organization

Departmentalization: After specialization, departmentalization must occur Departmentalization: the process of grouping jobs into logical units Departmentalized companies benefit from the division of activities, control and coordination are narrowed and made easier, and top managers can see more easily how various units are performing Departmentalization also allows the firm to treat a department as a profit centre a separate company unit responsible for its own costs and profits Managers do not group jobs randomly; they do it logically, according to some common thread or purpose

In general, departmentalization may occur along functional, customer, product, geographic, or process lines (or a combination of any of these) Functional Departmentalization Many services and manufacturing companies develop departments according to a groups function or activities functional departmentalization Such firms typically have production, marketing and sales, human resources, and accounting and finance departments Departments may be further subdivided Customer Departmentalization Is departmentalization according to the types of customers likely to buy a given product Mostly used by retail stores separate men and womens clothing, shoes, fragrances, etc. Stores can also group products in locations designated for deliveries, special sales, and other service-oriented purposes In general, when it is departmentalized, the store is more efficient and customers get better service in part because salespeople tend to specialize and gain expertise in their departments Product Departmentalization Is dividing an organization according to the specific product or service being created Both manufacturers and service providers often opt for this Geographic Departmentalization Is departmentalization according to the area of the country or world supplied Process Departmentalization Is departmentalization according to the production process used to create a good or service Because different bases of departmentalization have different advantages, larger companies tend to adopt different types of departmentalization for various levels

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ESTABLISHING THE DECISION-MAKING HIERARCHY Decision-making hierarchy managers must explicitly define reporting relationships among positions so that everyone will know who has a responsibility for various decisions and operations The development of this hierarchy generally involves a three-step process: assigning tasks, performing tasks, and distributing authority Assigning Tasks: Is determining who can make decisions and specifying how they should be made Individuals must work out agreements about responsibility and authority Responsibility: the duty to perform an assigned task Authority: the power to make the decisions necessary to complete the tasks Perfuming Tasks: Implementing decisions that have been made Trouble occurs when appropriate levels of responsibility and authority are not clearly spelled out in the working relationships between managers and subordinates The issues become delegation and accountability Delegation: assignment of a task, a responsibility, or authority by a manager to a subordinate Accountability: liability of subordinate for accomplishing tasks assigned by managers If the subordinate does not do the assigned task properly and promptly, he or she may be reprimanded or punished, possibly even dismissed 1. Fear of Delegating Many managers have trouble delegating tasks to others These managers typically exhibit several characteristics; they assume that employees can never do anything as well as they can, they fear that their subordinate will show the manager up in front of others by doing a superb job, they want to control everything, they

fail to do long-range planning because they are bogged down in day-to-day operations, and they are in the dark about industry trends and competitive products because they are too involved in daily operations To fix this, managers should recognize that they cannot do everything themselves, if subordinates cannot do a job, they should be trained so that they can assume more responsibility, and should recognize that if a subordinate performs well, it reflects favourably on that employees manager Efficient managers surround themselves with a team of strong subordinates and then delegate sufficient authority to those subordinates so they can get the job done Four things to keep in mind when delegating decide on the nature of the work to be done, match the job with the skills of subordinates, make sure the person chosen understands the objectives he or she is supposed to achieve, and make sure subordinates have the time and training necessary to do the task Distributing Authority: Determining whether the organization is to be centralized or decentralized Distributing involves a specific relationship between managers and subordinates Most businesses must also make decisions about general patterns of authority throughout the company, which can be largely centralized or decentralized a. b. c. d. e. Centralized Organizations Centralized Organization: top managers retain most decision-making rights for themselves and top managers must approve most lower-level decisions before they can be implemented its purpose is to maintain standardization Decentralized Organizations Decentralized Organization: lower- and middle-level managers are allowed to make significant decisions Its purpose is to make a company more responsive to its environment by breaking the company into more manageable units and giving those units more autonomy Reducing top-heavy bureaucracies is also a common goal of decentralization Decentralization can cause difficulties for companies Tall and Flat Organizations This is related to the concept of centralized or decentralized authority Flat Organizational Structure: an organization with relatively few layers of management (decentralized firms) Tall Organizational Structure: an organization with many layers of management (centralized firms Canadian Forces; colonels, sergeants, deputies, etc.) Since information, whether upward or downward bound in the structure, must pass through so many organizational layers, tall structures are prone to delays in information flow As organizations grow in size, they typically become at least somewhat taller Span of Control The distribution of authority also affects the number of people who work for any individual manager In a flat organizational structure, the number of people managed by one supervisor the managers span of control is usually wide In tall organizations, span of control tends to be relatively narrow Span of control depends on many factors Employees abilities, the supervisors managerial skills, the similarity and simplicity of those tasks performed under the managers supervision, and the extent to which they are interrelated, help determine whether span of control is narrow or wide Downsizing: the planned reduction in the scope of an organizations activity Downsizing affects the span of control usually means cutting substantial numbers of managers and workers and reducing the number and variety of products the company produces Downsizing may eliminate entire layers of management (creating a flatter corporate structure) and the remaining managers end up with larger spans of control When jobs are more diversified or prone to change, a narrow span of control is preferable Three Forms of Authority In an organization, it must be clear who has authority over whom As individuals are delegated responsibility and authority in a company, a complex web of interactions develops

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These interactions may result in one of three forms of authority; line, staff, or committee and team In reality, like departmentalization, all three forms may be found in a given company, especially a large one Line Authority Line Authority: authority that flows up and down the chain of command Most companies rely heavily on line departments departments directly linked to the production and sales of specific products Each line department is essential to an organizations success because if any line department fails to complete its task, the company cannot sell and deliver finished goods Thus, the authority delegated to line departments is important a bad decision by the manager in one department can hold up production for an entire plant Staff Authority Staff Authority: based on technical expertise and involves advising line managers about decisions Common staff positions include specialists in areas such as law, engineering, accounting, market research, and human resource management Staff members help line departments in making decisions but dont generally have the authority to make the final decisions Committee and Team Authority Is the authority granted to committees or work teams that play central roles in the firms daily operations At the operating level, many firms today are also using work teams groups of operating employees empowered to plan and organize their own work and to perform that work with minimum supervision

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BASIC ORGANIZATIONAL STRUCTURES The four basic forms of organizational structures are functional, divisional, project, and international The Functional Structure: Functional Structure: the various units in the organization formed based on the functions that must be carried out to reach organizational goals Makes use of departmentalization by function Advantages and Disadvantages of a Functional Advantages Disadvantages It focuses attention on the key activities that must be 1. Conflicts may arise among the functional areas performed Expertise develops within each function 2. No single function is responsible for overall organizational performance Employees have clearly defined career paths 3. Employees in each functional area have a narrow view of the organization The structure is simple and easy to understand 4. Decision making is slowed because functional areas must get approval from top management for a variety of decisions It eliminates duplication of activities 5. Coordinating highly specialized functions may be difficult

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The Divisional Structure: Divides the organization into several divisions, each of which operates as a semi-autonomous unit and profit centre Divisions in organizations can be based on products, customers, or geography Advantages and Disadvantages of a Divisional Structure Advantages Disadvantages It accommodates change and expansion 1. Activities may be duplicated across divisions It increases accountability 2. A lack of communication among divisions may occur It develops expertise in the various divisions 3. Adding diverse divisions may blur the focus of the organization It encourages training for top management 4. Company politics may affect the allocation of resources

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Project Organization: Most organizations are characterized by unchanging vertical authority relationships because such a set-up facilitates the production of a product in a routine and repetitive way Some organizations have projects that have a definite starting and ending point, so they use a project structure to deal with the uncertainty encountered in new situations

Project Organization: involves forming a team of specialists from different functional areas of the organization to work on a specific project Project structure may be temporary or permanent Project management is used in hydroelectric generating stations, shipyards, extraction of oil from tar sands, construction, military weapons, aerospace, and health-care delivery Matrix Organization: a variation of project structure in which the project manager and the regular line managers share authority This structure doesnt always work well

International Organization: Since many businesses today manufacture, purchase and sell in the global market, several different international organizational structures have emerged International Organizational Structures: organizational structures that are designed to help a company succeed in international markets. International departments, international divisions, or an integrated global organization are all variations of the international organizational structure as competition on a global scale becomes more complex, companies often find that they must experiment with the ways in which they respond some companies (like Wal-mart) make divisions for international markets, some do international divisions by continents (like U.S entertainment companies) some companies adopt a truly global structure in which they acquire resources (including capital), produce goods and services, engage in research and development, and sell products in whatever local market is appropriate, without any consideration of national boundaries (like General Electric) Organizational Design for the Twenty-First Century: As the world grows increasingly complex and fast paced, companies continue to seek new forms of organization that permit them to compete effectively Among the most popular of these new forms are the boundaryless organization, the team organization, the virtual organization, and the learning organization 1. Boundaryless Organization Is an organization in which traditional boundaries and structures are minimized or eliminated altogether Similarly, as firms partner with their suppliers in more efficient ways, external boundaries disappear 2. 3. 4. Team Organization Relies almost exclusively on project-type teams, with little or no underlying functional hierarchy People float from project to project as dictated by their skills and the demands of those projects Virtual Organization Has little or no formal structure and exists only in response to its own needs Typically has only a handful of permanent employees, a very small staff, and a modest administration facility If needs of organization increase, managers bring in temporary workers, lease facilities, and outsource basic support services to meet the demands of each unique situation As situation changes, the temporary workforce changes in parallel, with some people leaving the organization and others entering it In other words, the virtual organization exists only in response to its own goals Learning Organization It works to integrate continuous improvement with continuous employee learning and development Specifically, a learning organization works to facilitate the lifelong learning and personal development of all of its employees while continually transforming itself to respond to changing demands and needs Most frequent goals of a learning organization are improves quality, continuous improvement, and performance measurement The idea is that the most consistent and logical strategy for achieving continuous improvement is constantly upgrading employee talent, skill, and knowledge They believe that only through constant employee learning can continuous improvement really occur

THE INFORMAL ORGANIZATION Formal organization of a business is the part that can be seen and represented on the organization chart

Informal Organization: the everyday social interactions among employees that transcend formal jobs and job interrelationships Alters a companys formal structure It can help employees feel that they belong, gives them an outlet for letting off steam in a safe environment, and provides information that employees are interested in hearing But, it can reinforce office politics that put the interests of individuals ahead of those of the firm and a great deal of harm can be caused by distorted or inaccurate information communicated without management input or review

Informal Groups: Are groups of people who decide to interact among themselves even though they may not be required to do so by the formal organization May be people who work together or who simply get together for lunch, during breaks, or after work May talk about business, the boss, or non-work-related topics such as families, movies, or sports Impact of informal groups on the organization may be positive, negative, or neutral based on conversation content 1. Organizational Grapevine Grapevine: the informal communication network that runs through the entire organization Is found in all organizations except the very smallest Because the grapevine typically passes information orally, messages often become distorted in the process (broken telephone), but most office gossip has at least some kernel of truth to it Those passing the information may deliberately alter information to advance on their goals or to submarine someone elses (rumours) Listening to and passing on information damaging to someones reputation can backfire, harming your credibility and making you a target for similar gossip In general, the more detailed the information, the less likely it is to be true The higher the source, the greater the likelihood that the grapevine has the real story Cant eliminate grapevine, but managers do have some control over it By maintaining open channels of communication and responding vigorously to inaccurate information, managers can minimize the damage the grapevine can do Grapevine can be an asset by getting to know the key people in it, managers can partially control the information received and use the grapevine to determine employee reactions to new ideas (e.g., a change in human resource policies or packages) and managers can also receive valuable information from the grapevine and use it to improve decision making