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ALL RIGHTS RESERVEDNo part of this document may be reproduced without written approval from Limkokwing University of Creative Technology
Introduction to Business Management
PART III: Organizing
5
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Introduction to Business Management
Learning Outcomes
After this class, I will be able to:
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Introduction to Business Management
1. Identify and define the six elements of organization structure.
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Introduction to Business Management
2. Describe the advantages and disadvantages of
work specialization.
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Introduction to Business Management
3. Contrast authority and power.
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Introduction to Business Management
4. Identify the five different ways by which management can departmentalize.
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Introduction to Business Management
5. Contrast mechanistic and organic organizations.
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Introduction to Business Management
6. Summarize the effect of strategy, size, technology, and environment on organization structures.
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Introduction to Business Management
7. Contrast the divisional and functional structures.
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Introduction to Business Management
8. Explain the strengths of the matrix structure.
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Introduction to Business Management
9. Describe the boundaryless organization and what elements have contributed to its development.
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Introduction to Business Management
10 Explain what is meant by the term
learning organization.
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Introduction to Business Management
11. Describe the key variables for creating a customer-responsive culture.
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Introduction to Business Management
12. Describe what is meant by the term organization culture.
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Introduction to Business Management
The Elements of Structure
• Organization design– A process in which managers develop or
change their organization’s structure.• Work specialization
– A component of organization structure that involves having each discrete step of a job done by a different individual rather than having one individual do the whole job.
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Introduction to Business Management
Economies and Diseconomies of Work Specialization
Exhibit 5.1
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Introduction to Business Management
Organizational Structure: Control• Chain of command
– The continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom.
• Unity of Command– The management principle that no person
should report to more than one boss.• Span of control
– The number of subordinates a manager can direct efficiently and effectively.
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Introduction to Business Management
Chain of Command
Exhibit 5.2
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Introduction to Business Management
Organizational Structure: Control (cont’d)
• Authority– The rights inherent in a managerial position to
give orders and expect them to be obeyed.• Power
– An individual’s capacity to influence decisions.• Responsibility
– An obligation to perform assigned activities.
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Introduction to Business Management
Types of Organizational Authority
• Line authority– The position authority (given and defined by
the organization) that entitles a manager to direct the work of operative employees.
• Staff authority– Positions that have some authority (e.g.,
organization policy enforcement) but that are created to support, assist, and advise the holders of line authority.
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Introduction to Business Management
Line Versus Staff Authority
Exhibit 5.3
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Introduction to Business Management
Authority Versus Power: Authority
Exhibit 5.4a
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Introduction to Business Management
Authority Versus Power: Power
Exhibit 5.4b
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Introduction to Business Management
Types of Power
Coercive power Power based on fear.
Reward power Power based on the ability to distributesomething that others value.
Legitimate power Power based on one’s position in theformal hierarchy.
Expert power Power based on one’s expertise, special skill, or knowledge.
Referent power Power based on identification with aperson who has desirable resources orpersonal traits.
Exhibit 5.5
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Introduction to Business Management
Centralization And Decentralization• Centralization
– A function of how much decision-making authority is pushed down to lower levels in an organization; the more centralized an organization, the higher the level at which decisions are made
• Decentralization– The pushing down of decision-making authority to
the lowest levels of an organization
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Introduction to Business Management
Types of Departmentalization
Functional
Product
Customer
Geographic
ProcessExhibit 5.6
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Introduction to Business Management
Departmentalization• Functional departmentalization
– The grouping of activities by functions performed
• Product departmentalization
– The grouping of activities by product produced
• Customer departmentalization
– The grouping of activities by common customers
• Geographic departmentalization
– The grouping of activities by territory
• Process departmentalization
– The grouping of activities by work or customer flow
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Introduction to Business Management
Contingency Variables Affecting Structure
• Mechanistic organization– The bureaucracy; a structure that is high
in specialization, formalization, and centralization
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Introduction to Business Management
Contingency Variables Affecting Structure
• Organic organization– An adhocracy; a structure that is low in
specialization, formalization, and centralization
Structure follows strategy
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Introduction to Business Management
Mechanistic versus Organic Organizations
• Rigid hierarchical relationships
• Fixed duties • Many rules • Formalized communication
channels• Centralized decision authority• Taller structures
• Collaboration (both vertical and horizontal)
• Adaptable duties• Few rules• Informal communication• Decentralized decision
authority• Flatter structures Exhibit 5.7
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Introduction to Business Management
Technology and Structure
• Unit production– Production in terms of units or small
batches
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Introduction to Business Management
Technology and Structure
• Mass production– Production in terms of large batch
manufacturing
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Introduction to Business Management
Technology and Structure
• Process production– Production in terms of continuous
processing
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Introduction to Business Management
Organization Design Applications
• Simple structure– An organization that is low in specialization and
formalization but high in centralization• Functional structure
– An organization in which similar and related occupational specialties are grouped together
• Divisional structure– An organization made up of self-contained
units
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Introduction to Business Management
Functional Structure
Exhibit 5.8
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Introduction to Business Management
Divisional Structure
Exhibit 5.9
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Introduction to Business Management
Other Organizational Structures• Matrix structure
– An organization in which specialists from functional departments are assigned to work on one or more projects led by a project manager
• Team-based structure– An organization that consists entirely of work
groups or teams• Boundaryless organization
– An organization that is not defined or limited by boundaries or categories imposed by traditional structures
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Introduction to Business Management
Sample Matrix Structure
Exhibit 5.10
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Introduction to Business Management
Virtual Organization
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Introduction to Business Management
Learning Organization
• An organization that has developed the capacity to continuously adapt and change because all members take an active role in identifying and resolving work-related issues.
– Organization design
– Information sharing
– Leadership
– Organizational culture
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Introduction to Business Management
Characteristics of a Learning Organization
Exhibit 5.11Source: Based on P. M. Senge, The Fifth Discipline: The Art and Practice of Learning Organizations (New York: Doubleday, 1990); and R. M. Hodgetts, F. Luthans, and S. M. Lee, “New Paradigm Organizations: From Total Quality to Learning to World Class.” Organizational Dynamics (Winter 1994), pp. 4–19.
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Introduction to Business Management
Organization Culture• Organization culture
– A system of shared meaning within an organization that determines, to a large degree, how employees act
– Shared values are shown in cultural elements:• Stories, rituals, material symbols, and language
unique to the organization– Results from the interaction between:
• The founders’ biases and assumptions• What the first employees learn subsequently from
their own experiences.
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Introduction to Business Management
10 Characteristics of Organization Culture
• Member identity• Group emphasis• People focus• Unit integration• Control
• Risk tolerance • Reward criteria• Conflict tolerance• Means-end
orientation• Open-systems focus
Exhibit 5.12
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