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L EARNING O BJECTIVES READING STRATEGIES As you read PREDICT what the section will be about. CONNECT what you read with your own life. QUESTION as you read to make sure you understand the content. RESPOND to what you read. 296 CHAPTER 13 ORGANIZATIONAL STRUCTURE CHAPTER 13 CHAPTER 13 ORGANIZATIONAL STRUCTURE When you have completed this chapter, you will be able to: Read an organizational chart. List the four types of organizational structures and explain the advantages and disadvantages of each type. Name the factors that affect the type of structure an organization adopts. Describe the roles of the chief executive officer and the board of directors.

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  • 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 anorganization adopts.

    Describe the roles of the chief executive officer and theboard of directors.

    296-319-C13-865017 9/10/04 1:57 PM Page 296

  • WORKPLACE CONNECTIONS

    For further reading on man-agers and management go to:www.businessweek.com

    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 success.

    Rick Wagoner, General Motors,Chairman and CEO

    MANAGEMENT TALK

    297

    UnderstandingManagement

    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 costs.

    Analyzing Management Skills

    How would consolidating six divisionshelp General Motors improve serviceand cut costs? What are the possibledrawbacks of merging the separate divisions?

    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?

    296-319-C13-865017 9/24/04 5:19 PM Page 297

    www.businessweek.com

  • 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 not succeed.

    organizational chart line function staff function matrix structure team structure flat structure tall structure

    298 CHAPTER 13 ORGANIZATIONAL STRUCTURE

    Section 13.1

    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

    KEY TERMS

    296-319-C13-865017 9/10/04 1:57 PM Page 298

  • Types of Organizational StructuresCompanies generally adopt one of four organizational structures.

    These include:

    line structure line and staff structure matrix structure team structure

    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 does.

    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.

    functionsline

    organizational chart

    Understanding How Organizational Structures Work Section 13.1 299

    CONNECT

    Do you belong to any organiza-tions? If so, how are they struc-tured?

    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

    Chief Executive

    Officer

    Senior Managers

    Mid-level Managers

    Lower-level Managers

    Nonmanagement Employees

    296-319-C13-865017 9/10/04 1:57 PM Page 299

  • 300 CHAPTER 13 ORGANIZATIONAL STRUCTURE

    Management Careers in Focus

    Senior Engineer

    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 asenior engineer?

    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, laborato-

    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: busmanagement.glencoe.com

    BUSINESS MANAGEMENT

    296-319-C13-865017 9/10/04 1:57 PM Page 300

    busmanagement.glencoe.com

  • 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 needs.

    Line organizations are common among small businesses.Larger companies usually require a different kind of organiza-tional structure.

    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 managers.

    Staff functions

    Understanding How Organizational Structures Work Section 13.1 301

    Advertising

    Vice President,Sales

    President

    Sales Personnel Fabrication Assembly

    Vice President,Manufacturing

    LINE AND STAFF STRUCTUREFigure 132

    Some organizations add staff positions to support line positions. What are some examples of staffpositions?WORKING WITH CHARTS

    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

    LWEADING

    THE AY

    QUESTION

    Would a line structure be more compati-ble with a continuous flow or intermittentflow operating system?

    296-319-C13-865017 9/10/04 1:57 PM Page 301

  • Matrix StructureA allows employees from different departments

    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.

    matrix structure

    302 CHAPTER 13 ORGANIZATIONAL STRUCTURE

    Corporate level

    Division A

    Project C

    Personnel FinanceProduction Engineering

    Planners and analysts

    Planners and analysts

    Division B

    Accountinggroup

    Personnelgroup

    Engineeringgroup

    Productiongroup

    Projectmanager

    Project DAccounting

    groupPersonnel

    groupEngineering

    groupProduction

    groupProject

    manager

    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 CHARTS

    296-319-C13-865017 9/10/04 1:57 PM Page 302

  • 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 structure.

    The team structure is very differ-ent from the traditional organiza-tional structure. In the traditionalstructure, each level of management

    structureteam

    Understanding How Organizational Structures Work Section 13.1 303

    Senior Management

    Research Finance

    Marketing

    Team A

    Production

    Research Finance

    Marketing

    Team C

    Production

    Research Finance

    Marketing

    Team B

    Production

    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?

    296-319-C13-865017 9/10/04 1:57 PM Page 303

  • 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 incompetitive markets.

    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 CHARTS

    1

    2

    3

    4

    5

    6

    7

    1

    2

    3

    4

    Span of management 8:1Four levels

    Flat structure

    Span of management 5:1Seven levelsTall structure

    RESPOND

    Would you prefer to be anemployee in an organization witha tall structure or a flat structure?

    296-319-C13-865017 9/10/04 1:57 PM Page 304

  • 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 from

    the line and staff structure?6. True or False: A tall structure allows for

    greater employee power through delegation.

    CRITICAL THINKING

    1. Analyzing Information: Why do busi-nesses need organizational structures?

    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 managers?

    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?

    CASE ANALYSIS

    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 teamstructure.

    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.

    tall structure

    flat structure

    Understanding How Organizational Structures Work Section 13.1 305

    296-319-C13-865017 9/10/04 1:57 PM Page 305

  • CREATING AN ORGANIZATIONALSTRUCTURE

    The different waysin which companiesorganize theirdepartments.

    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 organizationalstructures.

    committee chief executive

    officer board of directors

    306 CHAPTER 13 ORGANIZATIONAL STRUCTURE

    Section 13.2

    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 employees.

    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 organiza-

    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 aformal structure.

    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 grow.

    WHAT YOULL LEARN

    WHY ITS IMPORTANT

    KEY TERMS

    SMALL BUSINESS STRUCTUREVery small businesses may not needorganizational structures. What happens when companies grow?

    296-319-C13-865017 9/10/04 1:57 PM Page 306

  • 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 isvery important.

    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 staffing.

    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 WITH CHARTS

    Time

    Size

    Stage 1:Growth throughcreativity

    Stage 2:Growth throughdirection

    Stage 3:Growth through delegation, coordination, and collaboration

    PREDICT

    At what point do you think a com-pany will make the shift fromStage 1 to Stage 2 growth?

    296-319-C13-865017 9/10/04 1:57 PM Page 307

  • 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 with

    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.

    FIGURE 137

    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.

    1

    296-319-C13-865017 9/10/04 1:57 PM Page 308

  • 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 road.

    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.

    2

    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.

    3

    296-319-C13-865017 9/10/04 1:57 PM Page 309

  • 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, andhuman resources.

    Production refers to the actual creation of a companys goods orservices.

    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 appropriate jobs.

    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?

    296-319-C13-865017 9/10/04 1:57 PM Page 310

  • 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 appropriate.

    Creating an Organizational Structure Section 13.2 311

    Vice President, Production

    President

    Quality ControlManager

    ManufacturingManager

    EngineeringManager

    Market ResearchManager

    SalesManager

    AdvertisingManager

    CreditManager

    AccountingManager

    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 CHARTS

    QUESTION

    Which of these four functions areline functions and which are stafffunctions?

    296-319-C13-865017 9/10/04 1:57 PM Page 311

  • 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 produce and

    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 aspects of

    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 detriment of

    312 CHAPTER 13 ORGANIZATIONAL STRUCTURE

    President

    Chemical Oil and gas Automotive AerospaceIndustrial and

    technology

    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 WITH CHARTS

    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.

    296-319-C13-865017 9/10/04 1:57 PM Page 312

  • 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 in Asia.

    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?

    296-319-C13-865017 9/10/04 1:57 PM Page 313

  • 314 CHAPTER 13 ORGANIZATIONAL STRUCTURE

    BusinessWeek speaks to Bill Gates about the companys sweepingreorganization.

    Q: Microsofts finan-cials have never lookedbetter. So why reorganize?

    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 competitors today?

    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.

    Management Model

    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 productdepartmentation.

    296-319-C13-865017 9/10/04 1:57 PM Page 314

  • 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 con-

    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 organization.

    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

    power

    Chief Executive OfficerSenior managers initiate or approve all of a

    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

    committee

    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

    CONNECT

    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 of direc-

    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 company.

    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.

    All About

    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 face?

    RESPOND

    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 through?

    2. Name two different ways a company canorganize its departments.

    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?

    CRITICAL THINKING

    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.

    CASE ANALYSIS

    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

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  • REVIEWING VOCABULARY

    Write a paragraph that demonstrates your understanding of thefollowing vocabulary words:

    organizational chartline functionstaff functionmatrix structureteam structure

    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?

    THINKING CRITICALLY

    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 management

    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 organiza-tional structures.

    Businesses generally adopt one ofthe following four organizationalstructures: line structure, line andstaff structure, matrix structure, orteam structure.

    Section 13.2

    The type of structure a companyadopts depends on many factors,including the companys size andits products or services.

    Many companies are organized bywork functions. Others are organizedby product, region, or customer.

    An organization may form a commit-tee to decide upon certain matters.

    Senior management, led by thecompanys chief executive officer,initiates or approves all of a com-panys major decisions.

    A board of directors approves allmajor decisions made by corporatemanagement.

    CHAPTER 13 ASSESSMENTCHAPTER 13 ASSESSMENT

    318 CHAPTER 13 ORGANIZATIONAL STRUCTURE

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  • 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.

    d. pictogram.

    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 Speaking

    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

    www.businessweek.com

    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 Management: Thailand

    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 Manager

    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 Business

    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: Russia

    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 Words

    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 Responsibility

    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 Out

    Section 8.2: Making Effective DecisionsAll About Attitude: Superhuman PowerTips from Robert HalfInternational Management: Germany

    Chapter 8 Assessment

    Chapter 9: Communication SkillsWorkplace Connections: BoeingSection 9.1: Developing Communication SkillsLeading the Way: Solicit Feedback

    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 Break

    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 Practice!

    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 from Straying

    Section 15.2: Rewarding PerformanceAll About Attitude: Burning Bridges

    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 Paycheck

    Chapter 19 Assessment

    Chapter 20: Operations ControlWorkplace Connections: Amazon.comSection 20.1 Managing Costs and InventoryTips from Robert Half

    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 Company

    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 As GANTT!

    GlossaryIndex

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