6-1McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Learning ObjectivesL01: Define characteristics of organization

structure: Organic or mechanisticDifferentiationIntegration

L02: Summarize how authority operates – who holds top authority in a company.

L03: Discuss how span of control affects structure and management effectiveness.

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Learning Objectives (cont’d)L04: Explain how to delegate effectively.L05: Distinguish between centralized and

decentralized organizations.L06: Define basic types of organization structures

and summarize their strengths.L07: Describe mechanisms used to coordinate

work.L08: Discuss how organizations can improve their

agility through strategy, commitment to customers and use of technology.

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Traditional OrganizingOrganization chart

reporting structure and division of labor in an organization

Organization TypesMechanistic – formal structure intended to promote

internal efficiencyOrganic - organizational form that emphasizes

flexibility characterized by:

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Organic - Modern OrganizingBroader responsibilities that change as need arisesCommunication through advice and informationDecentralized decision-making and influenceHighly valued expertise Emphasizes judgment rather than rulesCommitment to organizational goals is more important

than obedience to authority.Increased interdependence Relationships more informal and personal.

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Fundamentals of OrganizingDifferentiation

aspect of organization’s internal environment created by job specialization and division of labor.

IntegrationDegree to which differentiated work units work

together and coordinate efforts.

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Differentiation is…High

many subunits and specialists who think differentlyCreated through

Division of labor – when work of organization is subdivided into smaller tasks.

Specialization – different people or groups perform specific parts of larger task.

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CoordinationProcedures that link various parts of organization to

achieve organization’s overall mission.

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IntegrationDegree to which differentiated work units work

together and coordinate efforts.Accomplished through structural mechanismsAny job activity that links work unitsHigh differentiation and high integration leads to

success in dynamic environments.

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DifferentiationVertical authority within organization

Board of directorsChief Executive OfficerHierarchical levels.

HorizontalFunctionalDivisionalMatrix organizations.

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The Vertical Structure Authority

legitimate right to make decisions and to tell other people what to do.

Types of Authority Formal

Based on formal position, e.g. BOD, CEO Informal

Based on expertise, experience, or personal qualities, e.g., scientists, computer-savvy employees

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Span of ControlNumber of direct reports an executive or supervisor

managesOptimal span of control maximizes effectiveness by

balancing two considerations:Maintain control without overcontrol

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When should span be wide?1. Work is clearly defined and unambiguous2. Highly trained employees with access to

information3. Manager is highly capable and supportive4. Jobs are similar and performance measures are

comparable5. Employees prefer autonomy to close supervisory

control

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DelegationAssignment of new or additional responsibilities Fundamental feature of management at all levelsRequires communication with manager about

effectiveness of assignment implementation

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Is this delegation?Call Tom Burton at Nittany Office Equipment. Ask him togive you the price list on an upgrade for our personalcomputers. I want to move up to a Core 2 Duo processorwith 4 gigs of RAM and at least a 500-gigabyte hard drive.Ask them to give you a demonstration, and let them try itout. Have them write up a summary of their needs and thepotential applications they see for the new systems. Thenprepare me a report with the costs and specifications of theupgrade for the entire department. Oh, yes, be sure to askfor information on service costs.

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Responsibility and AccountabilityResponsibility

A person is assigned a task that an employee is supposed to carry out – within their power or control.

AccountabilityExpectation that employees will perform a job, take

corrective action when necessary, and report upward on the status and quality of their performance – be answerable.

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Advantages of DelegationLeverages the manager’s energy and talent and those of

his or her subordinatesConserves a manager’s timeDevelops effective subordinatesSubordinate gains an opportunity to develop new skills

and demonstrate potential for additional responsibilitiesPromotes a sense of being an important, contributing

member of the organization leading to stronger commitment, task performance, and innovation.

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Steps in Effective Delegation

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Centralized vs. DecentralizedDecision-Making

Centralized:High-level executives make most

decisions and pass them to lower levels for implementation.

DecentralizedLower level managers make important

decisions.

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The Horizontal StructureLine departments

those who have responsibility for the principal activities of the firm

Staff departmentsthose who provide specialized or professional

skills that support line departments

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Functional OrganizationsDepartmentalization around specialized skill sets

and activities Advantages

Economies of scaleMonitoring of the environment is more effectivePerformance standards are better maintainedGreater opportunity for specialized training and in-

depth skill developmentTechnical specialists are relatively free of

administrative workDecision making and lines of communication are

simple and clearly understood

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Functional OrganizationsDisadvantages

People may care more about their own function than about the company as a whole

Managers develop functional expertise but lack knowledge of the other areas of the business

Promotes functional differentiation not functional integration

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Divisional OrganizationGroups all functions into a single division and

duplicates functions across divisions.Act like separate businesses or profit centers and

work autonomously to accomplish the goals of the entire enterprise.

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The Divisional Organization

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Functional vs. Divisional ExamplesFunctional OrganizationCentral purchasing department

Separate companywide marketing, production, design, and engineering departments

Central city health department

Plantwide inspection, maintenance, and supply departments

Divisional OrganizationPurchasing unit for each

division

Each product group’s own experts in marketing, design, production, and engineering

Separate health units for the school district and the prison

Inspection, maintenance, and supply conducted by each production team

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Ways to set up a divisional structureProduct divisions

all functions that contribute to a given product are organized under one product manager.

Customer divisionsbuilt around groups of customers

Geographic divisionsstructure around geographic regions

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Matrix OrganizationAn organization composed of dual reporting

relationships in which some managers report to two superiors:functional manager divisional manager or project manager

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Matrix Organizational Structure

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Managing High Information-Processing Demands

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Organizational AgilityAgility

Ability to act, and act fast, to meet customer needs and respond to other outside pressures.

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Organizing around core competenciesIdentify existing core competenciesAcquire or build core competencies that will be

important for the futureKeep investing in competenciesExtend competencies to find new applications and

opportunities for future markets

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Managing core competencies Accumulate the right resources; discard the

wrong resources Combine resources to sustain organization

capabilities Leverage or exploit resources

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Strategic AlliancesDefinition

Formal relationship created among independent organizations with purpose of joint pursuit of mutual goals

Success Criteria Individual excellence: both partners add value Importance: both partners want the relationship to work Interdependence: Partners need each other Investment: Partners devote financial and other resources to relationship Information: Partners communicate openly Integration: Partners develop shared ways of operating Institutionalization: Relationship has formal status with clear responsibilities Integrity: Both partners are trustworthy and honorable

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An organizations’ ability to learn, and translate that learning into action rapidly, is

the ultimate competitive advantage.

-- Jack Welch

Former CEO, General Electric

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Learning OrganizationsDefinition

Organization skilled at creating, acquiring, and transferring knowledge

Can modify behavior to reflect new knowledge and insights.

IngredientsPeople engage in disciplined thinking and attention to detailsSearch constantly for new knowledge and ways to apply itReview successes and failures carefullyBenchmark best practices of other organizationsShare ideas throughout organization

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DownsizingPlanned elimination of positions.Becoming a normal business practice as:

global competition puts pressure on costsmergers cause functions to be consolidatednew technologies and new ways of doing business

Done appropriately can make firms more agileCan be traumatic for an organization and its

employees

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Effective Downsizing?Use downsizing only as a last resortEngage in careful analysis and strategic thinking in

choosing positions to eliminateTrain people to cope with new situationIdentify and protect talented peopleGive special attention and help to those who have lost

jobsCommunicate constantly with people about processInvite ideas for alternative ways to operate more

efficientlyIdentify how the organization will operate more effectively

in the future, and emphasize positive future and the remaining employees’ new roles in attaining it

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Organizing for Quality ImprovementTotal Quality Management (TQM)

An integrative approach to management that supports the attainment of customer satisfaction through a wide variety of tools and techniques that result in high-quality goods and services

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Deming’s 14 points of Quality1. Create constancy of

purpose2. Adopt new philosophy3. Cease dependence on

mass inspection4. End practice of awarding

business on price tag 5. Improve system of

production and service constantly

6. Institute training and retraining

7. Institute leadership

8. Drive out fear9. Break down barriers

among departments10. Eliminate slogans and

exhortations11. Eliminate numerical

quotas12. Remove barriers to pride

in workmanship13. Institute vigorous program

of education and retraining14. Take action to accomplish

transformation

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ISO 9001A series of quality standards developed by a

committee working under the International Organization for Standardization to improve total quality in all businesses for the benefit of producers and consumers in more than 150 companies

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8 Principles of ISO 9001

1. Customer focus

2. Leadership

3. Involvement of people

4. Process approach

5. System approach to management

6. Continual improvement

7. Factual approach to decision making

8. Mutually beneficial supplier relationships

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Organizing for Flexible ManufacturingMass customization

Production of varied, individually customized products at low cost of standardized, mass-produced products

Computer-integrated manufacturing Computerized production efforts, including computer-

aided design (CAD) and computer-aided manufacturing (CAM)

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Lean ManufacturingAn operation that strives to achieve highest possible

productivity and total quality, cost-effectively, by eliminating unnecessary steps in production process and continually striving for improvement.

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Conditions for Lean ManufacturingPeople are broadly trainedCommunication is informal and horizontal

among line workersEquipment is general purposeWork is organized in teams or cellsSupplier relationships are long-term and

cooperativeProduct development is concurrent, not

sequential, and is done by cross-functional teams

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Just-in-Time (JIT) OperationsA system that calls for subassemblies and

components to be manufactured in very small lots and delivered to the next stage of the production process just as they are needed

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Organizing for SpeedJIT is a companywide philosophy oriented toward

eliminating waste and improving materials throughout all operations.

Offers efficiency only when costs of storing items are greater than costs of frequent delivery

Simultaneous engineering incorporates the issues and perspectives of all functions from beginning of process

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YOU should be able toL01: Define the characteristics of organization

structure: organic or mechanistic, differentiation, and integration.

L02: Summarize how authority operates and who generally holds top authority in a company.

L03: Discuss how span of control affects structure and management effectiveness.

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YOU should be able toL04: Explain how to delegate effectively.L05: Distinguish between centralized and

decentralized organizations.L06: Define basic types of organization

structures, and summarize their strengths.L07: Describe important mechanisms used to

coordinate work.L08: Discuss how organizations can improve

their agility through strategy, commitment to customers and use of technology.

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Test Your Knowledge

In the study by Lawrence and Lorsch, companies in complex, dynamic environments developed _____ levels of differentiation; and _____ levels of integrationA) low; low B) intermediate; highC) high; highD) low; high E) high; low

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Test Your Knowledge

Define authorityWho holds top authority in an organization?

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Test Your Knowledge

A wide span of control builds a ______________ organization.

A) flat

B) narrow

C) tall

D) bureaucratic

E) formal

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Test Your Knowledge

Discuss the concepts of responsibility, authority, and accountability.

What should a manager do when he/she has more responsibility than authority

Why is this a problem?

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Test Your Knowledge

Ruby recently accepted a job with a large insurance firm as an internalauditor. Ruby has found that her new job is quite different than theinternship she had at an accounting consulting firm. The insurance firmhas strictly defined job responsibilities and lines of communication. Itseems that for every decision that Ruby needs to make, approval mustbe obtained from upper management! Overall, she has found theatmosphere to be quite formal as compared to the internship. Rubyhas concluded that the insurance firm has:

A) a wide span of control. B) a high degree of centralization. C) decentralized authority. D) a matrix design. E) an ineffective structure.

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Test Your knowledge

Sports International (SI) began business by making shoes for athletes. They soon expanded into making shoes for non-athletic purposes. They now manufacture and distribute clothing, sporting equipment and protective sports gear worldwide. They are departmentalized by products sold to serious athletes, products sold to "weekend" athletes and products sold to sports teams. SI has utilized which form of departmentalization? A) Geographic B) Functional C) Matrix D) Customer E) Product

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Test Your Knowledge

Michael Shaffer's job as a representative of CommuniCo is to handle communications between the organization and the local community. Michael is best described as a(n): A) mutual adjustment officer. B) program manager. C) individual task force. D) liaison. E) none of the above.

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Test Your Knowledge

Flexible factories have the following advantages EXCEPT:

A) Providing more production options.

B) Having much shorter production runs.

C) Being organized around products, in work cells or teams.

D) Good for standardized products.

E) Quicker to adapt to change.