8-1

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1-1McGraw-Hill/IrwinUnderstanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Nickels McHugh McHughNickels McHugh McHugh

**Adapting

Organizations to Today’s

Markets 8

CH

AP

TE

R*

* *

8-2

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Structuring an Organization Structuring an Organization Comprises:Comprises:

• AccountabilityAccountability

• Allocating Allocating ResourcesResources

• Establishing Establishing ProceduresProcedures

• Division of LaborDivision of Labor

• Team TasksTeam Tasks

• Assigning Assigning Responsibility/ Responsibility/ AuthorityAuthority

8-3

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Fayol’s Principles Fayol’s Principles of Organizationof Organization

• Unity of CommandUnity of Command

• Hierarchy of Hierarchy of AuthorityAuthority

• Division of LaborDivision of Labor

• Subordination of Subordination of Individual Interest Individual Interest to the General to the General InterestInterest

• AuthorityAuthority

• Degree of Degree of CentralizationCentralization

• Clear Clear Communication Communication ChannelsChannels

• OrderOrder

• EquityEquity

• Esprit de CorpsEsprit de Corps

8-4

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Weber’s Weber’s Organizational PrinciplesOrganizational Principles

• Job DescriptionsJob Descriptions

• Written RulesWritten Rules

• Procedures, Regulations, Procedures, Regulations, PoliciesPolicies

• Staffing/Promotions Based Staffing/Promotions Based on Qualificationson Qualifications

8-5

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CentralizationCentralization (No Delegation)(No Delegation)

AdvantagesAdvantages

• Greater Top-Greater Top-Management ControlManagement Control

• More EfficiencyMore Efficiency

• Simpler Distribution Simpler Distribution SystemSystem

• Stronger Stronger Brand/Corporate Brand/Corporate ImageImage

DisadvantagesDisadvantages

• Less Less Responsiveness to Responsiveness to CustomersCustomers

• Less EmpowermentLess Empowerment

• Interorganizational Interorganizational ConflictConflict

• Lower Morale Away Lower Morale Away from Headquartersfrom Headquarters

8-6

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Decentralization Decentralization (Delegate Authority)(Delegate Authority)

AdvantagesAdvantages• Better Adaptation to Better Adaptation to

Customer WantsCustomer Wants

• More Empowerment More Empowerment of Workersof Workers

• Faster Decision Faster Decision MakingMaking

• Higher MoraleHigher Morale

DisadvantagesDisadvantages• Less EfficiencyLess Efficiency

• Complex Distribution Complex Distribution SystemSystem

• Less Top-Management Less Top-Management ControlControl

• Weakened Corporate Weakened Corporate ImageImage

8-7

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Organizational StructuresOrganizational Structures

Tall OrganizationsTall Organizations

• Many Layers of Many Layers of ManagementManagement

• High Cost of High Cost of ManagementManagement

• Narrow Span of Narrow Span of ControlControl

Flat OrganizationsFlat Organizations

• Current TrendCurrent Trend

• Creation of TeamsCreation of Teams

• Broad Span of Broad Span of ControlControl

8-8

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How to Make Jobs How to Make Jobs Fit Your Company Fit Your Company (Part 1 of 2)(Part 1 of 2)

Each manager must ask:Each manager must ask:

• What resources do I control to What resources do I control to accomplish my tasks?accomplish my tasks?

• What measures will be used to evaluate What measures will be used to evaluate my performance?my performance?

• Who do I need to interact with and Who do I need to interact with and influence to achieve my goals?influence to achieve my goals?

• How much support can I expect when I How much support can I expect when I reach out to others for help?reach out to others for help?

Source: HBS Working Knowledge, October 31,2005

8-9

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How to Make Jobs How to Make Jobs Fit Your Company Fit Your Company (Part 2 of 2)(Part 2 of 2)

Four Basic Spans of a Job:Four Basic Spans of a Job:

• The Span of ControlThe Span of Control

• The Span of AccountabilityThe Span of Accountability

• The Span of InfluenceThe Span of Influence

• The Span of SupportThe Span of Support

Source: HBS Working Knowledge, October 31,2005

8-10

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Span of Control - NarrowSpan of Control - Narrow

Advantages Advantages

• More Control by More Control by Top ManagementTop Management

• More Chances for More Chances for AdvancementAdvancement

• Greater Greater SpecializationSpecialization

• Closer SupervisionCloser Supervision

DisadvantagesDisadvantages

• Less EmpowermentLess Empowerment

• Higher CostsHigher Costs

• Delayed Decision Delayed Decision MakingMaking

• Less Less Responsiveness to Responsiveness to CustomersCustomers

8-11

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Span of Control - BroadSpan of Control - Broad

Advantages Advantages

• Reduced CostsReduced Costs

• More More Responsiveness to Responsiveness to CustomersCustomers

• Faster Decision Faster Decision MakingMaking

• More More EmpowermentEmpowerment

DisadvantagesDisadvantages

• Fewer Chances for Fewer Chances for AdvancementAdvancement

• Overworked Overworked ManagersManagers

• Loss of ControlLoss of Control

• Less Management Less Management ExpertiseExpertise

8-12

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AdvantagesAdvantages• Skill DevelopmentSkill Development

• Economies of Economies of ScaleScale

• Good CoordinationGood Coordination

Departmentalization Departmentalization by Functionby Function

DisadvantagesDisadvantages• Lack of Lack of

CommunicationCommunication

• Employees Identify Employees Identify with Departmentwith Department

• Slow Response to Slow Response to External DemandsExternal Demands

• Narrow SpecialistsNarrow Specialists

• GroupthinkGroupthink

8-13

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DepartmentalizationDepartmentalization

• By ProductBy Product

• By FunctionBy Function

• By Customer By Customer GroupGroup

• By Geographic By Geographic LocationLocation

• By ProcessBy Process

8-14

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Line OrganizationsLine Organizations

AdvantagesAdvantages

• Clear Authority Clear Authority & Responsibility& Responsibility

• Easy to Easy to UnderstandUnderstand

• One Supervisor One Supervisor Per EmployeePer Employee

DisadvantagesDisadvantages

• InflexibleInflexible

• Few Specialists Few Specialists for Advicefor Advice

• Long Line of Long Line of CommunicationCommunication

• Difficult to HandleDifficult to Handle Complex Complex DecisionsDecisions

8-15

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Line/Staff OrganizationsLine/Staff Organizations

Line PersonnelLine Personnel

• Formal AuthorityFormal Authority

• Make Policy Make Policy DecisionsDecisions

Staff PersonnelStaff Personnel

• Advise Line Advise Line PersonnelPersonnel

• Assist Line Assist Line PersonnelPersonnel

8-16

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Matrix OrganizationsMatrix Organizations

AdvantagesAdvantages

• FlexibilityFlexibility

• Cooperation & Cooperation & TeamworkTeamwork

• CreativityCreativity

• More Efficient Use More Efficient Use of Resourcesof Resources

DisadvantagesDisadvantages

• Costly/ComplexCostly/Complex

• Confusion in Confusion in LoyaltyLoyalty

• Requires Good Requires Good Interpersonal Interpersonal Skills & Skills & CooperationCooperation

• Not PermanentNot Permanent

8-17

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Important ConditionsImportant Conditions for Small Teamsfor Small Teams

1.1. Clear PurposeClear Purpose

2.2. Clear GoalsClear Goals

3.3. Correct SkillsCorrect Skills

4.4. Mutual AccountabilityMutual Accountability

5.5. Shift Roles When AppropriateShift Roles When Appropriate

Source: CIO Dec 2003

8-18

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NetworkingNetworking

• Real TimeReal Time

• TransparencyTransparency

• Virtual Virtual CorporationsCorporations

8-19

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A Virtual CorporationA Virtual Corporation

CoreCore

FirmFirm

Accounting Accounting FirmFirm

ProductioProduction Firmn Firm DistributioDistributio

n Firmn Firm

AdvertisinAdvertising Agencyg Agency

Design Design FirmFirm

Legal Legal FirmFirm

8-20

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Benefits and Concerns ofBenefits and Concerns of HealthcareHealthcare OutsourcingOutsourcing

BenefitsBenefits

• Provides Enough Provides Enough Staff to Operate the Staff to Operate the FacilityFacility

• Cost SavingsCost Savings

ConcernsConcerns

• Lower Employee Lower Employee MoraleMorale

• LiabilityLiability

• Should Patients be Should Patients be InformedInformed

• Confidentiality & Confidentiality & SecuritySecurity

Source: Healthcare Financial Management, 2005

8-21

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Which Jobs Will Which Jobs Will Be Outsourced Next?Be Outsourced Next?

0% 2% 4% 6% 8% 10% 12%

CustomerSupport/Sales

InformationTechnology

Manufacturing

Source: USA Today

8-22

*** Adapting to ChangeAdapting to Change

• Restructuring for EmpowermentRestructuring for Empowerment

• Focusing on the CustomerFocusing on the Customer

• Creating a Change-Oriented Creating a Change-Oriented Organizational CultureOrganizational Culture

• The Informal OrganizationThe Informal Organization

8-23

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Layers of Authority-Layers of Authority-TraditionalTraditional

• Top Managers- Decision Top Managers- Decision MakersMakers

• Middle Managers- Develops Middle Managers- Develops Rules & Rules & ProceduresProcedures

• Workers and SupervisorsWorkers and Supervisors

8-24

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Inverted Inverted Organization StructureOrganization Structure

Empowered Empowered front-line front-line workersworkersSupport Support

PersonnelPersonnel

Top Top Mgmt.Mgmt.

8-25

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Examples ofExamples ofInformal Group NormsInformal Group Norms

• Do your job but don’t produce Do your job but don’t produce more than the rest of the group.more than the rest of the group.

• Don’t tell off-color jokes or use Don’t tell off-color jokes or use profane language among group profane language among group members.members.

• Listen to the boss and use his/her Listen to the boss and use his/her expertise but don’t trust him/her.expertise but don’t trust him/her.

• Everyone is to be clean/organized at Everyone is to be clean/organized at the workstation.the workstation.

8-26

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• Never side with managers in a Never side with managers in a dispute involving group members.dispute involving group members.

• Respect/help your fellow group Respect/help your fellow group members on the job.members on the job.

• Criticize the organization only Criticize the organization only among group members-- never among group members-- never among strangers.among strangers.

• Drinking is done off-the-job-- Drinking is done off-the-job-- Never at work!Never at work!

More Examples ofMore Examples ofInformal Group NormsInformal Group Norms