LE A R N I N G OB J E C T I V E S
READING STRATEGIESAs you read
PREDICT what the section will be about.
CONNECT what you read with your own life.
QUESTION as you read to make sure youunderstand the content.
RESPOND to what you read.
296 CHAPTER 13 ORGANIZATIONAL STRUCTURE
CHAPTER 13CHAPTER 13ORGANIZATIONALSTRUCTURE
When you have completed this chapter, you will be able to:
Read an organizational chart.
List the four types of organizational structures andexplain the
advantages and disadvantages of each type.
Name the factors that affect the type of structure
Describe the roles of the chief executive officer and theboard
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For further reading on man-agers and management go
Our company today is leaner,faster, more flexible and
moreefficientin short much morecompetitive. But our journey is
farfrom finished. Building upon ourrecent success and momentum,
weare determined to drive GM to thenext levelto sustained
Rick Wagoner, General Motors,Chairman and CEO
General Motors has a long,proud history of being one of
thebiggest car manufacturers in theworld. By the 1980s and
1990s,however, the company was losingprofits to newer, more
efficientmanufacturers. Since then, thecompany has updated its
facto-ries and streamlined its opera-tions in order to reduce
Analyzing Management Skills
How would consolidating six divisionshelp General Motors improve
serviceand cut costs? What are the possibledrawbacks of merging the
Applying Management Skills
Have you ever been in a situation athome or work where there
were toomany people in charge of completing atask? What suggestions
would you maketo simplify the process?
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UNDERSTANDING HOW ORGANIZATIONAL STRUCTURES WORK
How to read anorganizationalchart.
The four maintypes of organiza-tional structures.
The differencebetween staff andline functions.
The benefits ofadopting a matrixor team structure.
Without an appropri-ate organizationalstructure, a businesswill
organizational chart line function staff function matrix
structure team structure flat structure tall structure
298 CHAPTER 13 ORGANIZATIONAL STRUCTURE
ORGANIZATIONAL STRUCTURE Chief executive officers cannot make
all decisionsthemselves. They need to organize their companies so
that other managers can share in decision making. How does an
organizational structure help a companyearn profits?
What Is Organizational Structure?
Some organizations, such as a high school volunteer club, exist
tohelp people in need. Other organizations, such as a student
council,exist to give students a voice at school. Business
organizations exist toearn profits. To meet their goals, they
organize their employees intosome kind of structure.
Companies adopt organizational structures in order to
minimizeconfusion over job expectations. Having an organizational
structurehelps them coordinate activities by clearly identifying
which individ-uals are responsible for which tasks.
WHAT YOULL LEARN
WHY ITS IMPORTANT
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Types of Organizational StructuresCompanies generally adopt one
of four organizational structures.
line structure line and staff structure matrix structure team
Each of these different types of organizational structures can
beshown in an organizational chart. An is a visualrepresentation of
a businesss organizational structure. It shows whoreports to whom
within the company. It also shows what kind of workeach department
Line StructureIn a line organization, authority originates at
the top and moves
downward in a line (see Figure 131). All managers perform ,
functions that contribute directly to company profits.
Examples of line functions include production managers, sales
repre-sentatives, and marketing managers.
Understanding How Organizational Structures Work Section 13.1
Do you belong to any organiza-tions? If so, how are they
LINE STRUCTUREFigure 131
In a line structure organization, managers make all decisions
affecting their departments. Whatkinds of companies usually have
line structures?WORKING WITH CHARTS
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300 CHAPTER 13 ORGANIZATIONAL STRUCTURE
Management Careers in Focus
the state in which they work. Registrationrequires a degree from
a college or universityaccredited by the Accreditation Board for
Engi-neering and Technology (ABET), four years ofexperience, and
successful completion of astate exam.
Salary RangeSenior engineers earn $99,200 to $120,000+,
depending on experience, responsibilities, andindustry.
CRITICAL THINKINGWhat skills and abilities might be useful to
INDUSTRY OUTLOOK The aerospace indus-
try is the largest exporterin the United States. In2002, the
industry had anet trade balance of $30 billion. Civil aero-space
exports totaled $47 billion, militaryexports were $9.4 billion, and
engine and otherparts comprised $17 billion. Imports of aero-space
products were $27 billion for the year.
Nature of the WorkSenior engineers manage people and pro-
jects for a variety of industries. For example,they oversee the
design and production of elec-trical and electronic equipment,
industrialmachinery, aircraft, and motor vehicles. Theywork in
scientific, medical, and constructionfields as well. State, local,
and federal agenciesemploy many engineers at all levels.
Senior engineers supervise engineering andsupport staff, meet
with upper management,and establish budgets and completion
sched-ules for projects. They write reports for man-agement and
government inspectors. They seethat projects conform to government
guide-lines and industry standards. Senior engineersoften
troubleshoot a project when problemsdevelop.
Working ConditionsSenior engineers work in offices,
ries, or industrial plants. They work 40 hours aweek or longer,
and may travel to outside sitesto inspect projects.
Training, Other Qualifications, andAdvancementTo become a senior
engineer, you need a
bachelors or masters degree in engineering,plus several years
experience. Engineers whosework affects life, health, or property,
or whooffer services to the public must register in
For more information on management careers, go to:
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Line managers collect and analyze all of the informationthey
need to carry out their responsibilities. Production man-agers, for
example, hire and fire all of the assembly-line workersin their
departments. They also order all of the supplies theirdepartment
Line organizations are common among small businesses.Larger
companies usually require a different kind of organiza-tional
Line and Staff StructureIn mid-sized and large companies, line
managers cannot per-
form all of the activities they need to perform to run their
depart-ments. In these companies, other employees are hired to help
linemanagers do their jobs. These employees perform staff
functions(see Figure 132).
advise and support line functions. Staffdepartments include the
legal department, the human resourcesdepartment, and the public
relations department. These depart-ments help the line departments
do their jobs. They contributeonly indirectly to corporate profits.
Staff people are generally specialistsin one field, and their
authority is normally limited to making recom-mendations to line
Understanding How Organizational Structures Work Section 13.1
Sales Personnel Fabrication Assembly
LINE AND STAFF STRUCTUREFigure 132
Some organizations add staff positions to support line
positions. What are some examples of staffpositions?WORKING WITH
LEAVE THE COMPETITIONBEHINDDifferent departmentswithin an
organizationmay not always be fol-lowing the same operat-ing rules
of success.Always focus on the goalof satisfying customers.Internal
rivalry wastestime and lessens morale.Compete with your
com-petitors, not your co-workers.
EADING THE AY
Would a line structure be more compati-ble with a continuous
flow or intermittentflow operating system?
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Matrix StructureA allows employees from different
to come together temporarily to work on special project teams
(see Fig-ure 133). The purpose of this kind of structure is to
allow companiesthe flexibility to respond quickly to a customer
need by creating a teamof people who devote all of their time to a
project. Once the team com-pletes the project, the team members
return to their departments orjoin a new project team.
Companies that undertake very large projects often use the
matrixstructure. Boeing, for example, regularly assigns employees
to projectteams it creates to design new aircraft. Large high-tech
firms also fre-quently use the matrix structure.
302 CHAPTER 13 ORGANIZATIONAL STRUCTURE
Personnel FinanceProduction Engineering
Planners and analysts
Planners and analysts
Personnel FinanceProduction Engineering
MATRIX STRUCTUREFigure 133
In a matrix structure, employees work in a department but can be
temporarily assigned to a projectteam. What happens to these
employees when the team completes the project?WORKING WITH
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Team StructureMany companies have aban-
doned the line and staff approach toorganizational structure in
favor ofthe team approach. A
brings together peoplewith different skills in order to meeta
particular objective (see Figure134). More and more companiesare
using the team structure. Theybelieve this structure will allow
themto meet customer needs more effec-tively than the traditional
The team structure is very differ-ent from the traditional
organiza-tional structure. In the traditionalstructure, each level
Understanding How Organizational Structures Work Section 13.1
TEAM STRUCTUREFigure 134
The team approach differs from traditional organizational
structures, which depend on many levels ofmanagement. What are some
of the advantages of the team structure?WORKING WITH CHARTS
TEAM BUILDING Many companies have moved away from thetraditional
organizational structure. How does organizing acompany into teams
help it compete?
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reports to a higher management level. In this kind of
organization,senior managers need not approve decisions by
lower-level managers.Instead, teams have the authority to make
their own decisions.Employees often prefer the team structure
because of its focus on com-pleting a project rather than
performing a particular task.
One company that has successfully used teams is IBM. Beginningin
1990 the company introduced self-directed management teamsthat it
organized around customer needs. Each team tries to determinewhat
the customer is looking for and develop strategies with which
tomeet those needs. The approach helps the company respond quickly
Flat vs. Tall StructuresIn the previous chapter we looked at the
importance of a managers
span of managementthe number of employees who report to a
304 CHAPTER 13 ORGANIZATIONAL STRUCTURE
FLAT VS. TALL STRUCTURESFigure 135
Organizations can have flat or tall structures. Do you think
that the downsizing trends of the 1990shave had any effect on a
companys decision to maintain a flat or tall structure?WORKING WITH
Span of management 8:1Four levels
Span of management 5:1Seven levelsTall structure
Would you prefer to be anemployee in an organization witha tall
structure or a flat structure?
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Section 13.1 Assessment
FACT AND IDEA REVIEW
1. What is the purpose of an organizationalchart?
2. What is a line function?3. What is a staff function? 4. What
is a matrix structure? 5. How does the team structure differ
the line and staff structure?6. True or False: A tall structure
greater employee power through delegation.
1. Analyzing Information: Why do busi-nesses need organizational
2. Drawing Conclusions: Why do some com-panies prefer to
organize by teams?
3. Predicting Consequences: In a businesswith a line and staff
structure, why mightconflict arise between line managers andstaff
ASSESSING MATH SKILLS
Labyrinth Technologies, a high-tech com-pany that specializes in
computer graphics, hasdecided to reorganize its corporate
structureinto a team structure. By organizing intoteams, Labyrinth
expects to be able to elimi-nate three mid-level managers, each
earning$82,000 a year. It also expects to hire two addi-tional
entry-level employees, to be paid about$25,000 a year each. If the
cost of the reorga-nization itself is $75,000, how much can
thecompany expect to save after two years?
You are the manager of a manufacturing com-pany that employs 500
people. The owner ofthe company has given you free rein to
reorga-nize the company however you want.
Apply: Write a one-page paper thatdescribes whether you would
recommendadopting a line, line and staff, matrix, or
manager. In a similar fashion, organizations can be classified
as beingeither tall or flat.
A is an organization that has a small number of lev-els and a
broad span of management at each level. This calls for a gooddeal
of delegation on the part of the manager. Employees have morepower
within the company. A is an organization thathas many levels with
small spans of management. In this case, poweris centralized on the
top levels and there is more employee control.Figure 135
illustrates the breakdown of management levels thatoccur in a flat
or a tall structure. Some advantages of a flat structureinclude
greater job satisfaction, more delegation, and increased
com-munication between levels of management. Some advantages of a
tallstructure are greater control and better performance.
Understanding How Organizational Structures Work Section 13.1
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CREATING AN ORGANIZATIONALSTRUCTURE
The different waysin which companiesorganize
Why a companysstructure needs to change as thecompany grows.
The role of thechief executiveofficer.
The role of theboard of directors.
Managers both helpcreate and work with-in
committee chief executive
officer board of directors
306 CHAPTER 13 ORGANIZATIONAL STRUCTURE
Factors Affecting Organizational Structure
The organizational structure a company chooses depends on
thenature of its business. A structure that is appropriate for a
high-techcompany that employs 50,000 people in eight countries will
not beappropriate for a small retail business with just a dozen
Many factors affect the choice of organizational structure.
Themost important factors are the size of the business and the
kinds ofproducts or services it produces.
SizeThe size of a business has a very important effect on the
tional structure that a management adopts. Very small,
single-personbusinesses need no organizational structure at all.
Companies withonly a few employees canalso function well without
Once a business employsmore than just a fewemployees, however, a
for-mal structure is necessary.Moreover, for a business tobe
successful, its structuremust change as the businesscontinues to
WHAT YOULL LEARN
WHY ITS IMPORTANT
SMALL BUSINESS STRUCTUREVery small businesses may not
needorganizational structures. What happens when companies
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Typically, businesses go through three organizational life
cyclestages. As Figure 136 shows, these stages include growth
through cre-ativity; growth through direction; and growth through
delegation,coordination, and collaboration.
STAGE 1: GROWTH THROUGH CREATIVITY During the first stage
ofgrowth, entrepreneurs with new ideas create products or services
forwhich there is a market (see Figure 137). Their businesses tend
to besmall. They usually lack formal structures, policies, and
objectives. Thecompany founder is involved in every aspect of the
business andmakes all decisions.
During this stage of development, management skills are muchless
important than they are later on, because there are very
fewemployees to manage. Having an idea that appeals to consumers
STAGE 2: GROWTH THROUGH DIRECTION Once a company grows, it
enters the second stage of its growth cycle. During this stage,
thecompany grows in size, and the company founder is no longer
solelyresponsible for all decision making. Instead, the company
relies onprofessional managers. The managers are responsible for
various func-tions, including planning, organizing, and
Creating an Organizational Structure Section 13.2 307
ORGANIZATIONAL LIFE CYCLE STAGESFigure 136
Different skills are important at each stage of the life cycle.
Why do you think creativity is mostimportant during Stage 1?WORKING
Stage 1:Growth throughcreativity
Stage 2:Growth throughdirection
Stage 3:Growth through delegation, coordination, and
At what point do you think a com-pany will make the shift
fromStage 1 to Stage 2 growth?
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As a company grows, its managers usually create written
policies, pro-cedures, and plans. They establish rules and systems
for hiring, firing, andrewarding employees. They set up systems for
communicating informa-tion among employees. They set up financial
controls, which determinehow much each department can spend.
Employees who once were ableto make decisions spontaneously must
now follow formal rules.
STAGE 3: GROWTH THROUGH DELEGATION As we discussed in Chap-ter
12, sometimes a companys structure becomes too rigid, and deci-sion
making becomes too centralized. Lower-level employees feel leftout
of the decision-making process. Top executives find themselves
toofar removed from the customer to make good decisions. To deal
308 CHAPTER 13 ORGANIZATIONAL STRUCTURE
A companysorganizationalstructure must adaptas the companygrows
and differentskills are needed ateach stage of thecycle. Look at
howthe needs of AppleComputer havechanged over time.
The ChangingNature of a Companys OrganizationalStructure
STAGE 1When a company is young, it depends heavily on
creativity. Steven Jobs and Steve Wozniak were
technical geniuses who had a brilliant idea for a user-friendly
desktop computer. They turned this idea intoa multimillion dollar
company by introducing theApple II computer in the 1970s.
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these problems, companies often move to the next stage of the
orga-nization life cycle, stage 3.
In stage 3, businesses delegate more responsibility to
lower-levelemployees in an attempt to decentralize decision making.
Delegatingauthority helps businesses in two ways. First, it
motivates people atlower levels, whose jobs become more
interesting. Second, it allowssenior executives to devote more of
their time to long-term manage-ment issues, such as what kinds of
products their companies shouldoffer five and ten years down the
As you can see, businesses grow for many reasons and in many
dif-ferent ways. Figure 137 illustrates the growth of one
companythrough the three stages.
Creating an Organizational Structure Section 13.2 309
STAGE 2As a company grows, it needs managers with
excellent managerial skills.To continue to grow, in the1980s
Apple Computerreplaced its co-founder,Steven Jobs, with a
profes-sional manager. The newchief executive officer, JohnSculley,
helped introducethe companys Macintoshcomputer.
STAGE 3In the third stage of the organizational life cycle,
managers learn to delegate authority.
In 1996 company founder Steven Jobs returnedto Apple as interim
chief executive officer in aneffort to breathe new life into a
company thathad fallen on hard times. Apples
organizationalstructure allowed it to introduce several impor-tant
products in the 1990s, including the iMac.
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Type of Product or ServiceThe type of product or service a
company produces is another
important factor affecting its organizational structure. In
general, thenumber of levels within an organization increases as
the level of tech-nical complexity increases. This means that a
company that producessophisticated electronic equipment is likely
to have more levels ofmanagement than a company that produces
garden tools. Companiesthat produce technically complicated
products also are likely to have alarger percentage of managers and
supervisors than companies that pro-duce simpler products.
The president of a large water company that has 7,500
employeesaptly summed up this relationship between product and
organizationalcomplexity. He noted, We dont need more management
than a toystore does. A company with just a few layers of
management has a flatorganizational structure.
Organizing a Company intoDepartments
All but the smallest companies are organized intodepartments.
These departments may be based onwork functions, products,
geography, or customers.
General Electric has several major divisions,including aircraft
engines, consumer products,insurance, commercial finance, NBC, and
PowerSystems. A senior manager heads each of thesedivisions.
Organizing Departments by Work Functions
Some businesses organize their departments by function (see
Figure 138). These functionsinclude production, marketing, finance,
Production refers to the actual creation of a companys goods
Marketing involves product development, pricing,
distribution,sales, and advertising.
Finance refers to maintaining a companys financial statementsand
obtaining credit so that a company can grow.
Human resources deals with hiring employees and placing themin
310 CHAPTER 13 ORGANIZATIONAL STRUCTURE
FUNCTIONALDEPARTMENTATIONThis graphic artist worksin the
marketing depart-ment, together with all of the companys
othermarketing professionals.What are some of theadvantages of
organizinga company in this way?
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Each of these basic functions includes various positions.
Market-ing, for example, includes advertising, sales, and market
research. Pro-duction includes engineering, manufacturing, and
quality control.Finance includes accounting and credit.
The primary advantage of organizing a company by functions
isthat it allows for functional specialization. One group of
professionalscan devote all of its time to accounting. Another can
become experts inadvertising or engineering. Organizing a company
by functions alsomay save a company money by allowing it to use its
equipment andresources most efficiently.
Organizing a company by function can have some negative
effects,however. Conflicts may develop between departments with
differentgoals. The production department, for example, may be more
con-cerned about product quality than the marketing department.
Organizing a company by functions also may hurt a company
bycreating managers whose scope is relatively narrow. For example,
amarketing manager may know a great deal about marketing, but he
orshe may be completely unfamiliar with the other aspects of the
com-panys business. Where managers need to have a much broader
scope,a different organizational structure may be more
Creating an Organizational Structure Section 13.2 311
Vice President, Production
Vice President, Finance
Vice President, Marketing
ORGANIZING A COMPANY BY FUNCTIONFigure 138
Many companies organize by function. What are some of the
disadvantages of organizing acompany in this way?WORKING WITH
Which of these four functions areline functions and which are
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Organizing Departments by ProductA second way in which a company
can organize its departments is
by product (see Figure 139). Under this kind of organizational
struc-ture, a single manager oversees all the activities needed to
market a particular product. This type of
organizationalstructure allows employees to identify with the
productrather than with their particular job function. It
oftenhelps to develop a sense of common purpose.
Structuring a department by product also helps acompany identify
which products are profitable. GeneralMotors (GM), for example, can
easily determine which ofits divisions is earning the most money
because the com-pany is organized in independent units. Each unit
pro-duces a different product. If GM had instead adoptedfunctional
departments, it would be difficult to know ifChevrolets were
earning more profits than Cadillacs.
Another advantage of organizing departments byproducts is that
it provides opportunities for trainingexecutive personnel by
letting them experience a broadrange of functional activities. The
head of the PontiacDivision at GM, for example, understands all
the division, not just those related to one particular function.
He or sheis in a better position to become the chief executive
officer of GM thana manager who had spent his or her entire career
working in a singlefunctional department.
Organizing a company by products also can cause problems,
how-ever. Departments can become overly competitive, to the
312 CHAPTER 13 ORGANIZATIONAL STRUCTURE
Chemical Oil and gas Automotive AerospaceIndustrial and
ORGANIZING A COMPANY BY PRODUCTFigure 139
Organizing a company by product rather than function tends to
create managers with expertise inmore than one area. What other
advantages are there to organizing a company in this way?WORKING
Tips from Robert Half With the growing number
of small businesses, chancesare good that youll work forone.
Take advantage of theopportunity at a small firm to learn about
marketing,sales, public relations, andcomputers.
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the company as a whole. Organizing the company by product
alsomeans that activities are duplicated across departments. GM,
for exam-ple, has a marketing department for each division, rather
than a singlemarketing department for the company as a whole.
Organizing Departments in Other WaysCompanies can organize in
other ways as well. Some companies, for
example, organize their operations by geographical region. One
seniormanager might be responsible for all of a companys activities
withinNorth America. Another might be in charge of all activities
Companies also can organize by type of customer. A large
com-puter company, for example, might have one division responsible
forsales to governments, another to for-profit businesses, and
another tononprofit organizations.
Creating an Organizational Structure Section 13.2 313
PRODUCT ORGANIZATION At many packaged-goods manufacturers,
managers areresponsible for every aspect of a particular brand.
What are the advantages toorganizing a company in this way?
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314 CHAPTER 13 ORGANIZATIONAL STRUCTURE
BusinessWeek speaks to Bill Gates about the companys
Q: Microsofts finan-cials have never lookedbetter. So why
A: Companies failwhen they become com-placent and imagine
thatthey will always be suc-cessful. So we are alwayschallenging
ourselves: Are wemaking what customers wantand working on the
productsand technologies theyll want inthe future? Are we staying
aheadof all our competitors? Are weorganized most effectively
toachieve our goals? Even themost successful companies
mustconstantly reinvent themselves.
Q: What are the three keyprinciples of the reorganization?
A: First, our vision hadalways been a computer onevery desk and
in every home.But it was also clear that weneeded to build on that
vision.Although the PC is still at theheart of computing, it is
beingjoined by a large number ofnew devicesfrom palmsizePCs to
smart telephones. Atthe same time, the Internet has
changed everything by givingthe world a level of connectiv-ity
that was undreamed of justfive years ago. So we needed anew vision
centered aroundthe Internet.
Second, the new structureputs the customer at the centerof
everything we do by reorga-nizing our business divisionsby customer
segment ratherthan along product lines.
Third, were now holdingthe leaders of our new businessdivisions
accountable to thinkand act as if they are indepen-dent businesses.
That will giveus even more flexibility torespond to changes in
technol-ogy and the marketplace.
Q: Which three companiesdo you consider to be yourbiggest
Q&A WITH THE VISIONARY-IN-CHIEF
A Talk with Chairman Bill Gates on the World Beyond Windows
A: In 25 years in thisindustry, I have neverseen so much
competi-tion in every single area. Ican probably narrowtodays list
down to IBM,Sun, AOL/Netscape, Nov-ell, Linux, and Oracle.
Theres an unchangingcompetitor tooourselves.Customers can
choosewhether to stay with the
software they have or upgrade toour new products. We have
toensure that all new releases aremuch, much better than
ourprevious products. If they arent,customers wont upgrade.
Excerpted with permission fromBusinessWeek, May 17, 1999
CRITICAL THINKINGExplain what Gates meanswhen he states, Even
themost successful companiesmust constantly reinventthemselves.
DECISION MAKINGAs a manager at Microsoft,decide whether it would
bebest to use customer depart-mentation or
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Understanding the Role of Company Leadership
Organizational structures often appoint individuals or groups
inleadership positions for the company. Three examples of such
leadershiproles are committees, chief executive officers, and
boards of directors.
CommitteesA is an organized group of people appointed to
sider or decide upon certain matters. Committees can be
permanent ortemporary. You might have been part of a committee at
school, plan-ning for the homecoming dance or a Thanksgiving drive
to collectfood for the poor. A committee might be formed in a
company to workon a new budget, or to plan for the relocation of an
Managers can do many things to increase theefficiency of a
committee. In order to producethe optimal results, there are
guidelines thatshould be followed when choosing and managinga
committee. These guidelines are
clearly define the committees function establish authority
figures within a
committee set clear goals for members to attain decide on the
limits of a committees
Chief Executive OfficerSenior managers initiate or approve all
companys major decisions. These include decisionsabout producing
new products, expanding interna-tionally, or building new
factories. These managers are led by a
, the most important executive in a company.The chief executive
officer, or CEO, is the top executive in a com-
pany. Together with other senior managers, the CEO
sets the companys objectives makes decisions about meeting the
companys objectives determines who fills senior management
positions develops the companys long-term strategies attends the
companys annual stockholders meeting and
answers questions about the companys activities takes charge of
the company in a crisis works with the board of directors
chief executive officer
Creating an Organizational Structure Section 13.2 315
TURKEYAge is highly honored inTurkey. The Turkish defer to
elders to offer advice and make deci-sions, especially since so
many Turkishbusinesses are family owned. Elders
are shown respect bybeing introduced first,served first,
andallowed to go throughdoors first.
W O R K P L A C E
D I V E R S I T Y
Imagine that you are in chargeof organizing a committee
tooversee your schools homecom-ing activities. What would youdo to
increase the committeesefficiency?
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Board of Directors In companies owned by stockholders, a board
tors approves all major management decisions. Ais the legal
representative of a com-
panys stockholders. In this role, a board of directorsserves
several important functions. Headed by a chairper-son, the board
approves the most important decisionsmade by the companys chief
executive officer. It exam-ines all major decisions to ensure that
they are in the bestinterest of the companys stockholders.
The presence of a board of directors makes it more dif-ficult
for corporate managers to act in ways that benefitthem personally
at the expense of the companys owners.If, for example, management
proposed to increase execu-
tive salaries by 300 percent, the board of directors would
likely veto themove. It would approve the increase if it believed
that such a move wassomehow in the interest of stockholders.
In a small business, the board of directors may consist entirely
offamily members. In a larger company, the board usually includes
bothpeople from the company and people from outside the
board of directors
316 CHAPTER 13 ORGANIZATIONAL STRUCTURE
ITS ALL GOODStuck in a rut? Feeling under-valued or too bogged
down withwork? Think for a moment aboutthe most difficult
situations youhave had to face. Compared toyour previous
difficulties, thecurrent situation is probably abreeze.
A T T I T U D E
CORPORATE DECISIONS During his tenure as CEO of Home Depot,
Arthur Blank(right) initiated or approved all major corporate
decisions. What are some of thedecisions Blank was likely to
Do you think its important formembers of a companys board
ofdirectors to have expertise in thecompanys type of business?
Whyor why not?
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Section 13.2 Assessment
FACT AND IDEA REVIEW
1. What are the three organizational stages acompany will go
2. Name two different ways a company canorganize its
3. Explain some of the duties of a chief execu-tive officer.
4. What is the difference between an insideboard member and an
outside board member?
5. How can a manager increase committeeefficiency?
1. Making Comparisons: What are theadvantages and disadvantages
of organizinga company by function? By product?
2. Analyzing Information: What is the pur-pose of a board of
directors? Why is itimportant for a company to have
outsidedirectors on its board?
ASSESSING COMPUTER SKILLS
Choose a major U.S. company, such as Com-paq Computer, Texas
Instruments, IBM, Coca-Cola, or General Mills. Using the Internet
orlibrary resources, find out how the companyyou selected is
organized and identify the topsix managers. If you can, obtain a
copy of thecompanys organizational chart.
Johnson Office Supply is a large wholesalesupplier of office
supplies. The company sells tooffice supply stores, government
agencies, andother institutions. Currently, the company isorganized
geographically, with senior managersresponsible for each of the
companys fourmajor regions. The president of Johnson OfficeSupply
suspects that this structure may not beappropriate. She has asked
you to come up witha proposal for reorganizing the company.
Apply: Prepare a one-page report explain-ing how and why you
would reorganize John-son Office Supply.
Senior company managers who serve on the companys board
ofdirectors are known as inside board members. Directors who do
notwork for the company are known as outside board members.
Outside board members often include senior executives of
otherbusinesses, heads of cultural or educational institutions, and
formerpublic servants. At PepsiCo, for example, the board of
directorsincludes the former CEOs of IBM and AT&T, as well as
the CEO of apublic television station and the former president of a
major university.Such outside directors often bring a fresh
perspective to analyzing abusinesss decision-making process.
Boards of directors usually meet four to six times a year. They
focuson a companys major decisions, leaving day-to-day company
opera-tions to the companys managers.
Creating an Organizational Structure Section 13.2 317
296-319-C13-865017 9/10/04 1:57 PM Page 317
Write a paragraph that demonstrates your understanding of
thefollowing vocabulary words:
organizational chartline functionstaff functionmatrix
RECALLING KEY CONCEPTS
1. Describe a line and staff organizational structure.2. How
does a businesss structure change as it grows
in size?3. What are some factors that determine the kind of
organizational structure a company adopts?4. How does a board of
directors affect the decision-
making process of a business?
1. Why do businesses need organizational structures?2. Why is it
important for a companys structure to
evolve as the company grows?3. What skills are most important at
each stage in a
companys development?4. Why is it important for a companys
to work well with its board of directors?5. Explain the
difference between a tall structure and
a flat structure.
flat structuretall structurecommitteechief executive
officerboard of directors
CHAPTER SUMMARYSection 13.1
Companies use organizational chartsto visually represent their
Businesses generally adopt one ofthe following four
organizationalstructures: line structure, line andstaff structure,
matrix structure, orteam structure.
The type of structure a companyadopts depends on many
factors,including the companys size andits products or
Many companies are organized bywork functions. Others are
organizedby product, region, or customer.
An organization may form a commit-tee to decide upon certain
Senior management, led by thecompanys chief executive
officer,initiates or approves all of a com-panys major
A board of directors approves allmajor decisions made by
CHAPTER 13 ASSESSMENTCHAPTER 13 ASSESSMENT
318 CHAPTER 13 ORGANIZATIONAL STRUCTURE
296-319-C13-865017 9/10/04 1:57 PM Page 318
Assessment CHAPTER 13 319
PREPARING FOR COMPETITIVE EVENTS
To display the authority structure withinan organization, use
a/ana. bar chart.
b. line graph.
c. organizational chart.
CHAPTER 13 ASSESSMENTCHAPTER 13 ASSESSMENT
ASSESSING ACADEMIC SKILLS
ART Choose two of the organizationalstructures described in this
chapter. Make aposter showing how a company would be orga-nized
under each type of structure.
APPLYING MANAGEMENT PRINCIPLES
SOLVE THE PROBLEM You are a member ofthe board of directors of a
major importer of
tropical nuts. Recently, someof the companys stockhold-ers have
expressed their con-cern that the company may
be contributing to thedepletion of the Ama-zon rain forest. As
aboard member, how would you respond totheir concerns?Public
Present your ideas onresponding to environ-
mental concerns to the other members of theboard. End your
presentation with a proposalto company management.
In this chapter you read the Busi-nessWeek Management Model
aboutBill Gates. Using the Internet orlibrary resources, find
current articleson Microsofts corporate organization,Bill Gates
role in the company, andthe governments impact on Micro-softs
organization. Write a two-pagesummary of the articles and
presentyour findings to the class. For moreinformation, go to
BusinessWeekonline at: www.businessweek.com
296-319-C13-865017 9/10/04 1:57 PM Page 319
Business ManagementTable of ContentsUnit 1: Management
TodayChapter 1: Introduction to ManagementWorkplace Connections:
MicrosoftSection 1.1: The Importance of Business
ManagementWorkplace Diversity: EgyptTips from Robert HalfLeading
the Way: Staying BalancedAll About Attitude: Pitching InManagement
Careers in Focus: School Principal
Section 1.2: EntrepreneurshipBusinessWeek Management Model: This
Is No Fashion Victim
Chapter 1 Assessment
Chapter 2: The Management MovementWorkplace Connections: United
AirlinesSection 2.1: The Evolution of ManagementBusinessWeek
Management Model: Hooked on QualityLeading the Way: Dress for
SuccessAll About Attitude: Do Unto OthersTips from Robert
HalfManagement Careers in Focus: Farm Manager
Section 2.2: The Development of Modern Management International
Chapter 2 Assessment
Chapter 3: Careers in ManagementWorkplace Connections:
DuPontSection 3.1: Exploring Careers Leading the Way:Open Your Eyes
and EarsManagement Careers in Focus:Manager of Computer
ServicesTips from Robert Half
Section 3.2: A Future in ManagementBusinessWeek Management
Model: The Shape of Things to Come.Com?Workplace Diversity:
FranceAll About Attitude: Act Now
Chapter 3 Assessment
Unit 1 Project ManagementEntrepreneurship and YouAnyone Can Be a
Unit 2: The Management EnvironmentChapter 4: Ethics and Social
ResponsibilityWorkplace Connections: NikeSection 4.1: Ethics in
BusinessInternational Management: The NetherlandsLeading the Way:
Internal and External CustomersManagement Careers in Focus:
Property ManagerTips from Robert HalfAll About Attitude: Honesty Is
the Best Policy
Section 4.2: Social ResponsibilityBusinessWeek Management Model:
Laundering Images of Soiled Companies Is Turning Into Big
Chapter 4 Assessment
Chapter 5: Businesses, Workers, and the LawWorkplace
Connections: Sun MicrosystemsSection 5.1: Laws that Regulate
BusinessesAll About Attitude: Giving Your BestLeading the Way: Work
SmartManagement Careers in Focus: Management Dietician
Section 5.2: Workers and the LawWorkplace Diversity:
SingaporeBusinessWeek Management Model: Japanese Women Are Winning
More Rightsand Factory JobsTips from Robert Half
Chapter 5 Assessment
Chapter 6: EconomicsWorkplace Connections: Portland Trail
BlazersSection 6.1: Making Decisions in a Market EconomyAll About
Attitude: Work Hard, Play HardTips from Robert HalfManagement
Careers in Focus: Marketing ManagerInternational Management:
Section 6.2: The Business CycleBusinessWeek Management Model:
Retiredto a New JobLeading the Way: To Oops or Not to Oops
Chapter 6 Assessment
Chapter 7: International BusinessWorkplace Connections:
McDonaldsSection 7.1: International TradeAll About Attitude: Think
PositiveTips from Robert HalfLeading the Way: Listen Beyond the
Section 7.2: The Global EconomyBusinessWeek Management Model:
Women-Owned Businesses: In the PinkManagement Careers in Focus:
Advertising ManagerWorkplace Diversity: United Kingdom
Chapter 7 Asssessment
Unit 2 Project ManagementProfit Maximization and Social
Unit 3: Foundation SkillsChapter 8: Decision-Making
SkillsWorkplace Connections: Sony CorporationSection 8.1: What Is
Decision Making?Leading the Way: Solution-OrientedManagement
Careers in Focus: Magazine EditorBusinessWeek Management Model:
Computer Models May Give Execs Previews of How Decisions Pan
Section 8.2: Making Effective DecisionsAll About Attitude:
Superhuman PowerTips from Robert HalfInternational Management:
Chapter 8 Assessment
Chapter 9: Communication SkillsWorkplace Connections:
BoeingSection 9.1: Developing Communication SkillsLeading the Way:
Section 9.2: Types of CommunicationTips from Robert
HalfManagement Careers in Focus: ControllerWorkplace Diversity:
IndiaBusinessWeek Management Model: The Mess Made for Business by
Junk E-MailAll About Attitude: The K.I.S. Principle
Chapter 9 Assessment
Unit 3 Project ManagementCreative Decision Making
Unit 4: Planning SkillsChapter 10: Planning and Strategic
ManagementWorkplace Connections: StarbucksSection 10.1: What Is the
Planning Process?Tips from Robert HalfLeading the Way: Take a
Section 10.2: Strategic Management ProcessInternational
Management: SwedenManagement Careers in Focus: Hospital
AdministratorAll About Attitude: The Tough Keep GoingBusinessWeek
Management Model: Yahoo! Act Two
Chapter 10 Assessment
Chapter 11: Operations Management and PlanningWorkplace
Connections: PepsiCoSection 11.1: Operations ManagementManagement
Careers in Focus: Product ManagerLeading the Way: Dont Be a
Slouch!Tips from Robert Half
Section 11.2: Job Design and PlanningWorkplace Diversity:
TaiwanBusinessWeek Management Model: A Cutting-Edge Strategy Called
SharingAll About Attitude: Directions to Carnegie Hall
Chapter 11 Assessment
Unit 4 Project ManagementCapacity Planning
Unit 5: Organizing SkillsChapter 12: Organizing and
WorkWorkplace Connections: SaturnSection 12.1: Designing
OrganizationsInternational Management: Latin AmericaManagement
Careers in Focus: Convention Services Manager
Section 12.2: Delegating Responsibility and AuthorityAll About
Attitude: Bossy BootsLeading the Way: Hey Coach!BusinessWeek
Management Model: Taking Charge of ChangeTips from Robert Half
Chapter 12 Assessment
Chapter 13: Organizational StructureWorkplace Connections:
General MotorsSection 13.1: Understanding How Organizational
Structures WorkManagement Careers in Focus: Senior EngineerLeading
the Way: Leave the Competition Behind
Section 13.2: Creating an Organizational StructureTips from
Robert HalfBusinessWeek Management Model: A Talk with Chairman Bill
Gates on the World Beyond WindowsWorkplace Diversity: TurkeyAll
About Attitude: Its All Good
Chapter 13 Assessment
Chapter 14: Understanding Work GroupsWorkplace Connections:
Lucent TechnologiesSection 14.1: How Groups BehaveTips from Robert
HalfManagement Careers in Focus: Labor Relations ManagerAll About
Attitude: Shyness Doesnt ShineBusinessWeek Management Model: The
Global Corporation Becomes the Leaderless Corporation
Section 14.2: Managing Formal GroupsInternational Management:
MexicoLeading the Way: Theres No I in Team
Chapter 14 Assessment
Chapter 15: Working with EmployeesWorkplace Connections:
Recreational Equipment Inc.Section 15.1: Meeting Personnel
NeedsTips from Robert HalfManagement Careers in Focus: Personnel
ManagerLeading the Way: Be FairWorkplace Diversity:
SwitzerlandBusinessWeek Management Model: How to Keep Rising Stars
Section 15.2: Rewarding PerformanceAll About Attitude: Burning
Chapter 15 Assessment
Unit 5 Project ManagementEffective Organization
Unit 6: Leadership SkillsChapter 16: Motivation and
LeadershipWorkplace Connections: Wal-MartSection 16.1:
MotivationAll About Attitude: Dont Just Do Your Job. Do It
Better!Management Careers in Focus: Training and Development
ManagerInternational Management: IndonesiaLeading the Way:
StorytellersTips from Robert Half
Section 16.2: Power, Authority, and LeadershipBusinessWeek
Management Model: In My Company You Cant Make Leaders
Chapter 16 Assessment
Chapter 17: Managing Conflict and StressWorkplace Connections:
United Parcel ServiceSection 17.1: Conflict in the WorkplaceLeading
the Way: Laugh a LittleManagement Careers in Focus: Hotel
ManagerWorkplace Diversity: Japan
Section 17.2: Stress in the WorkplaceBusinessWeek Management
Model: Companies Hit the Road Less TraveledTips from Robert HalfAll
About Attitude: Help!
Chapter 17 Assessment
Chapter 18: Managing Change, Culture, and DiversityWorkplace
Connections: Hewlett-PackardSection 18.1: Managing ChangeManagement
Careers in Focus: Food and Beverage Manager
Section 18.2: Managing Corporate Culture and DiversityLeading
the Way: Breaking the IceInternational Management: Hong KongAll
About Attitude: Im DifferentTips from Robert HalfBusinessWeek
Management Model: Its No Easy Task for a Business Owner to Keep the
Melting Pot from Boiling Over
Chapter 18 Assessment
Unit 6 Project ManagementManaging Conflict
Unit 7: Quality Control SkillsChapter 19: Management
ControlWorkplace Connections: Ben and JerrysSection 19.1: The
Management Control ProcessLeading the Way: Surprise!Tips from
Robert HalfAll About Attitude: Loose Lips Sink ShipsManagement
Careers in Focus: Medical Office Manager
Section 19.2: Methods of Management ControlWorkplace Diversity:
PeruBusinessWeek Management Model: Smoke, Mirrors, and the Bosss
Chapter 19 Assessment
Chapter 20: Operations ControlWorkplace Connections:
Amazon.comSection 20.1 Managing Costs and InventoryTips from Robert
Section 20.2: Quality ManagementManagement Careers in Focus:
Retail ManagerAll About Attitude: The 80/20 RuleBusinessWeek
Management Model: Generosity Is the Hallmark of Thriving Boston
Duck ToursInternational Management: GreeceLeading the Way: Its Your
Chapter 20 Assessment
Chapter 21: Management Information SystemsWorkplace Connections:
America OnlineSection 21.1: Tools of the Information AgeAll About
Attitude: Ask AwayLeading the Way: Be YourselfManagement Careers in
Focus: Management Analyst and Consultant
Section 21.2: Implementing an MISTips from Robert HalfWorkplace
Diversity: NigeriaBusinessWeek Management Model: Knowledge
Management: Taming the Info Monster
Chapter 21 Assessment
Unit 7 Project ManagementScheduling and Controlling Made As Easy
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