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UNDERSTANDING BUSINESS

Adapting Organizations to Today’s Markets

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EVOLVING BUSINESS ENVIRONMENTS

Global Competition Declining Economy Technological Changes Preserving the Environment Changing Customer Expectations

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CUSTOMER EXPECTATIONS

High quality products

Fast Service Friendly Service Reasonable Cost

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THE DEVELOPMENT OF ORGANIZATION DESIGN

Business Growth leads to economies of scale

The larger the business the more organization is required

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ECONOMIES OF SCALE

Companies Reduce

Production Costs if:

Purchase raw materials in bulk

Average cost of goods goes down as production increases

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1900’S ERA OF MASS PRODUCTION

The 1900’s spawned the Era of Mass Production

Manufacturer’s main

goal was to produce large quantities of goods efficiently

Two organization theorists influenced mass production techniques

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HENRY FAYOL

Published- Administration industriele et

generale, 1919 in France

His Book became popular in the U.S. in 1949 as General and

Industrial Management

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HENRY FAYOL’S PRINCIPLES

Unity of command Hierarchy of

authority Divisions of labor Subordination of

individual interests to the general interest

Authority

Degree of centralization

Clear communication channels

Order Equity Espirit’ de corps

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MAX WEBER

Author of The theory of social and economic organizationsGerman socialogist and economistIntroduced the term bureaucracy by referring to a middle manager as a bureaucrat

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MAX WEBER’S ORGANIZATIONAL THEORY Principles similar to

Fayol’s with additional theories

Believed that organizational rules should be followed precisely

His theories worked well for uneducated and untrained workers

Job descriptions Written rules,

decision guidelines, and detailed records

Consistent procedures, regulations, and policies

Staffing and promotion based on qualifications

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BUREAUCRACY

Layers ofManagers

Set rules

Set regulations

Oversee all decisions

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TURNING PRINCIPLES INTO ORGANIZATION DESIGN

Based on Fayol’s and Weber’s theories managers sought to control

workers

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HEIRARCHY

One person is at the top or in charge

Everyone else is ranked

according to whom they report to

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CHAIN OF COMMAND

Chain of authority that moves from the top of the hierarchy to the bottom going through each level or chain of command

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DECISIONS TO MAKE INSTRUCTURING ORGANIZATIONS

Centralized or decentralized authority

Appropriate span of control

Tall and flat organization structures

Weigh advantages and disadvantages of departmentalization

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CENTRALIZED OR DECENTRALIZED?

CENTRALIZED DECENTRALIZED Top level

management maintains authority for decision making

Top level managers designate authority to lower level managers who are more familiar with operations & employees

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CENTRALIZED

ADVANTAGES DISADVANTAGES

Top level managers have more control

Distribution is basic Brand and corporate

image strengthens

Less empowerment Less responsive to

customers Inter-organizational

conflict Morale is lower away

from headquarters

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DECENTRALIZED

ADVANTAGES DISADVANTAGES

Adapt better to customer wants

More empowerment of workers

Decisions made quicker

Complex distribution system

Less responsive to customer wants

Top level management has less control

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APPROPRIATE SPAN OF CONTROL

Deciding on Appropriate Span of Control

Span of control is the most amount of subordinates that

one manager can oversee and control

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SPAN OF CONTROL

Narrows at higher levels of management

Empowers lower level management & employees

Reduces amount of middle managers

More face-to-face communication

Manager can handle more information

Work becomes standardized

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CHOOSING TALL OR FLAT ORGANIZATION STRUCTURE

TALL ORGANIZATION STRUCTURE

FLAT ORGANIZATION STRUCTURE

Pyramid organization chart shows as tall because of the many levels of management

Smaller span of control

Less people report to each manager

Higher costs More paper work Poor communication

and decision making

Few layers of management/wider span of control

More people report to each manager

Empowering lower level employees to make decisions

Large organizations use flat structures to imitate small firms customer relations

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DEPARTMENTALIZATIONDIVIDES ORGANIZATIONS INTO SEPARATE UNITS

Organizations are divided into separate

unitsTypically divided by

functionsThe flatter the

organization the greater the span of control

FunctionsDesignProductionMarketing Accounting Groups of WorkersSkillsExpertiseResource

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BENEFITS OF DEPARTMENTALIZATION

Specialize tasks Work together more effectively

Save on costs Improves efficiency

Coordinate work within functions Top management has more control

Improves Responsiveness to customers Higher chances for advancement

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ALTERNATE WAYS TO DEPARTMENTALIZE

Nature, Product & Customer’s determine the type of departmentalization that is needed

A combination of different types is called “Hybrid forms”

Customer group Geographical location Activity Processes

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DEPARTMENTALIZATION

ADVANTAGES DISADVANTAGES

Narrow Top Management has more

control Greater advancement

potential Improved specialization Supervision is closer  Broad Cost reduction Improved Customer

responsiveness Decision making quicker More empowerment

Narrow Empowerment reduced Costs are higher Decision making delayed Less responsiveness to

customers

Broad  Fewer chances for

advancement Overworked managers Loss of control Management expertise

decreased

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ORGANIZATIONAL MODELS

Line Organizations Line & Staff Organizations Matrix Organization Cross-Functional Self-Managed Teams

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LINE ORGANIZATIONS

Direct two-way lines running from the top to the bottom of the

organization Responsibility Authority CommunicationsEveryone reports to one supervisor

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LINE & STAFF ORGANIZATIONS

Line personnel-Employees who are part of the chain of command that is responsible for achieving organizational goals.

Staff personnel-Employees who advise and assist line personnel in meeting their goal

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MATRIX ORGANIZATIONS

Specialists from different parts of the organization are brought together to work on specific projects and remain part of the line and staff structure

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MATRIX ORGANIZATION

ADVANTAGES DISADVANTAGES

Managers have flexibility assigning people to projects

Inter-organizational teamwork

Efficient use of organization resources

Costly and complex Confusing to employees

(loyalty to project manager or functional unit)

Good interpersonal skills required

Managers and employees must cooperate (avoid communication problems)

Temporary solution to a long term problem

 

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CROSS FUNCTIONAL SELF MANAGED TEAMS

Groups of employees from different departments who work together on a long term basis

Temporary solution for Matrix teams

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CROSS FUNCTIONAL TEAMS EMPOWERED

Work closely with: Suppliers

Customers Others

Quick & Efficient High quality products

Great service

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CROSS FUNCTIONAL TEAMSLONG-TERM

Teams who work together long term as self managed teams empowered to make managerial decisions without prior management approval break down barriers in:

Design Engineering Marketing Distribution Other functions

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CROSS FUNCTIONAL TEAMS WORK BEST WHEN:

Sharing Leadership Includes Customers Suppliers Distributors Going beyond organizational boundaries 

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MANAGING INTERACTIONS AMONG FIRMS

Networking Transparency & Virtual

Organizations Benchmarking Core Competencies

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NETWORKING

Communication links organizations allowing them to work together on common objectives

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TRANSPARENCY & VIRTUAL ORGANIZATIONS

Real time-Present moment when something takes place

Virtual corporation-organization temporarily networked comprised of

replaceable firms join and leave as needed

 

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BENCHMARKING

Comparisons of Organizations Against the world’s best Practices

Products Adapting to change

Process

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CORE COMPETENCIES

Functions: Organization can do “as

good” or better than other organizations in the world

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ADAPTING TO CHANGE

Prepare to adapt to structure changes Digital Natives-People who have grown

up using Internet and social networking

Restructuring-Redesigning an organization so it is more effective &

efficient

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RESTRUCTURING FOR EMPOWERMENT

Traditional Organization-Top Management, Middle, Supervisory, Frontline

Inverted Organization-Has contact people at the top and chief executive officer at the bottom of the organization chart-turning the traditional organization structure upside down.

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CREATING A CHANGE

Organizational (Corporate) culture-Shared values within an organization that provide unity and cooperation to achieve common goals

Informal organization-System develops spontaneously as employees meet and form cliques, relationships and lines of authority outside the formal organization

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CREATING A CHANGE

Formal organization Structure detailing lines of

responsibility, authority and position

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CREATING A CHANGE

Informal organization-System develops spontaneously as employees meet and form cliques, relationships and lines of authority outside the formal organization

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REFERENCES

Nickels, William G. McHugh, M. James, McHugh M. Susan. Understanding business.preview edition, 9th edition. McGraw Hill/Irwin. 2010./

Photo. Fayol Henry.http://www.123people.com/ext/frm?ti=person%20finder&search_term=henry%20fayol&search_country=US&st=perso%20finder&target_url=http://s657.photobucket.com/album

Photo. Weber Max. http://www.mta.ca/faculty/socsci/sociology/fleming/weber_album/weberin1918.html