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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.

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WORKPLACE CONNECTIONS

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

“Our company today is leaner,faster, more flexible and moreefficient—in short much morecompetitive. But our journey is farfrom finished. Building upon ourrecent success and momentum, weare determined to drive GM to thenext level—to 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?

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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


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 YOU’LL LEARN

WHY IT’S IMPORTANT

KEY TERMS

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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 business’s 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 13–1). 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 13–1

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

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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

bachelor’s or master’s 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

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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 13–2).

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


Advertising

Vice President,Sales

President

Sales Personnel Fabrication Assembly

Vice President,Manufacturing

LINE AND STAFF STRUCTUREFigure 13–2

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?

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Matrix StructureA allows employees from different departments

to come together temporarily to work on special project teams (see Fig-ure 13–3). 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


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 13–3

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

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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 Figure13–4). 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


Senior Management

Research Finance

Marketing

Team A

Production

Research Finance

Marketing

Team C

Production

Research Finance

Marketing

Team B

Production

TEAM STRUCTUREFigure 13–4

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 incompetitive markets.

Flat vs. Tall StructuresIn the previous chapter we looked at the importance of a manager’s

span of management—the number of employees who report to a


FLAT VS. TALL STRUCTURESFigure 13–5

Organizations can have flat or tall structures. Do you think that the downsizing trends of the 1990shave had any effect on a company’s 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?

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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 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 13–5 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


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CREATING AN ORGANIZATIONALSTRUCTURE

➤ The different waysin which companiesorganize theirdepartments.

➤ Why a company’sstructure 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


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 YOU’LL LEARN

WHY IT’S IMPORTANT

KEY TERMS

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

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Typically, businesses go through three organizational life cyclestages. As Figure 13–6 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 13–7). 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 13–6

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?

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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 company’s 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


A company’sorganizationalstructure must adaptas the companygrows and differentskills are needed ateach stage of thecycle. Look at howthe needs of AppleComputer havechanged over time.

FIGURE 13–7

The ChangingNature of a Company’s 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

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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 road.

As you can see, businesses grow for many reasons and in many dif-ferent ways. Figure 13–7 illustrates the growth of one companythrough the three stages.


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 company’s 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. Apple’s organizationalstructure allowed it to introduce several impor-tant products in the 1990s, including the iMac.

3

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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 don’t 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 13–8). These functionsinclude production, marketing, finance, andhuman resources.

• Production refers to the actual creation of a company’s goods orservices.

• Marketing involves product development, pricing, distribution,sales, and advertising.

• Finance refers to maintaining a company’s financial statementsand obtaining credit so that a company can grow.

• Human resources deals with hiring employees and placing themin appropriate jobs.


� FUNCTIONALDEPARTMENTATIONThis graphic artist worksin the marketing depart-ment, together with all of the company’s 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-pany’s business. Where managers need to have a much broader scope,a different organizational structure may be more appropriate.


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 13–8

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?

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Organizing Departments by ProductA second way in which a company can organize its departments is

by product (see Figure 13–9). 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


President

Chemical Oil and gas Automotive AerospaceIndustrial and

technology

ORGANIZING A COMPANY BY PRODUCTFigure 13–9

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 you’ll 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 company’s 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.


� 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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BusinessWeek speaks to Bill Gates about

the company’s sweepingreorganization.

Q: Microsoft’s 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 they’ll 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 devices—from 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, we’re 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 narrowtoday’s list down to IBM,Sun, AOL/Netscape, Nov-ell, Linux, and Oracle.

There’s an unchangingcompetitor too—ourselves.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 aren’t,customers won’t 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.

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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 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 committee’s function• establish authority figures within a

committee• set clear goals for members to attain• decide on the limits of a committee’s

power

Chief Executive OfficerSenior managers initiate or approve all of a

company’s 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 company’s objectives• makes decisions about meeting the company’s objectives• determines who fills senior management positions • develops the company’s long-term strategies • attends the company’s annual stockholders’ meeting and

answers questions about the company’s activities• takes charge of the company in a crisis• works with the board of directors

chief executive officer

committee


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 school’s homecom-ing activities. What would youdo to increase the committee’sefficiency?

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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-

pany’s 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 company’s chief executive officer. It exam-ines all major decisions to ensure that they are in the bestinterest of the company’s 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 company’s 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


IT’S 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 it’s important formembers of a company’s board ofdirectors to have expertise in thecompany’s 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 thecompany’s 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 company’s 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 company’s 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 abusiness’s decision-making process.

Boards of directors usually meet four to six times a year. They focuson a company’s major decisions, leaving day-to-day company opera-tions to the company’s managers.


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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 business’s 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 company’s structure to

evolve as the company grows?3. What skills are most important at each stage in a

company’s development?4. Why is it important for a company’s 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 SUMMARY

Section 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 company’s 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 thecompany’s chief executive officer,initiates or approves all of a com-pany’s major decisions.

� A board of directors approves allmajor decisions made by corporatemanagement.

CHAPTER 13 ASSESSMENTCHAPTER 13 ASSESSMENT


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Assessment CHAPTER 13 319

PREPARING FOR COMPETITIVE EVENTS

To display the authority structure withinan organization, use a/an

a. 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 company’s 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 Microsoft’s corporate organization,Bill Gates’ role in the company, andthe government’s impact on Micro-soft’s organization. Write a two-pagesummary of the articles and presentyour findings to the class. For moreinformation, go to BusinessWeekonline at: www.businessweek.com

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www.businessweek.com