BUS137 Chapter 6

Learning Objectives L01: Define characteristics of organization structure: Organic or mechanistic Differentiation Integration L02: Summarize how authority operates – who holds top authority in a company. L03: Discuss how span of control affects structure and management effectiveness.

Learning Objectives (cont’d) L04: Explain how to delegate effectively. L05: Distinguish between centralized and decentralized organizations. L06: Define basic types of organization structures and summarize their strengths. L07: Describe mechanisms used to coordinate work. L08: Discuss how organizations can improve their agility through strategy, commitment to customers and use of technology.

Traditional Organizing Organization chart reporting structure and division of labor in an organization Organization Types Mechanistic – formal structure intended to promote internal efficiency Organic - organizational form that emphasizes flexibility characterized by:

Organic - Modern Organizing Broader responsibilities that change as need arises Communication through advice and information Decentralized decision-making and influence Highly valued expertise Emphasizes judgment rather than rules Commitment to organizational goals is more important than obedience to authority. Increased interdependence Relationships more informal and personal.

Fundamentals of Organizing Differentiation aspect of organization’s internal environment created by job specialization and division of labor . Integration Degree to which differentiated work units work together and coordinate efforts .

Differentiation is… High many subunits and specialists who think differently Created through Division of labor – when work of organization is subdivided into smaller tasks. Specialization – different people or groups perform specific parts of larger task.

Coordination Procedures that link various parts of organization to achieve organization’s overall mission.

Integration Degree to which differentiated work units work together and coordinate efforts. Accomplished through structural mechanisms Any job activity that links work units High differentiation and high integration leads to success in dynamic environments.

Differentiation Vertical authority within organization Board of directors Chief Executive Officer Hierarchical levels. Horizontal Functional Divisional Matrix organizations.

The Vertical Structure Authority legitimate right to make decisions and to tell other people what to do. Types of Authority Formal Based on formal position, e.g. BOD, CEO Informal Based on expertise, experience, or personal qualities, e.g., scientists, computer-savvy employees

Span of Control Number of direct reports an executive or supervisor manages Optimal span of control maximizes effectiveness by balancing two considerations: Maintain control without overcontrol

When should span be wide? Work is clearly defined and unambiguous Highly trained employees with access to information Manager is highly capable and supportive Jobs are similar and performance measures are comparable Employees prefer autonomy to close supervisory control

Delegation Assignment of new or additional responsibilities Fundamental feature of management at all levels Requires communication with manager about effectiveness of assignment implementation

Is this delegation? Call Tom Burton at Nittany Office Equipment. Ask him to give you the price list on an upgrade for our personal computers. I want to move up to a Core 2 Duo processor with 4 gigs of RAM and at least a 500-gigabyte hard drive. Ask them to give you a demonstration, and let them try it out. Have them write up a summary of their needs and the potential applications they see for the new systems. Then prepare me a report with the costs and specifications of the upgrade for the entire department. Oh, yes, be sure to ask for information on service costs.

Responsibility and Accountability Responsibility A person is assigned a task that an employee is supposed to carry out – within their power or control. Accountability Expectation that employees will perform a job, take corrective action when necessary, and report upward on the status and quality of their performance – be answerable .

Advantages of Delegation Leverages the manager’s energy and talent and those of his or her subordinates Conserves a manager’s time Develops effective subordinates Subordinate gains an opportunity to develop new skills and demonstrate potential for additional responsibilities Promotes a sense of being an important, contributing member of the organization leading to stronger commitment, task performance, and innovation.

Centralized vs. Decentralized Decision-Making Centralized: High-level executives make most decisions and pass them to lower levels for implementation. Decentralized Lower level managers make important decisions.

The Horizontal Structure Line departments those who have responsibility for the principal activities of the firm Staff departments those who provide specialized or professional skills that support line departments

Functional Organizations Departmentalization around specialized skill sets and activities Advantages Economies of scale Monitoring of the environment is more effective Performance standards are better maintained Greater opportunity for specialized training and in-depth skill development Technical specialists are relatively free of administrative work Decision making and lines of communication are simple and clearly understood

Functional Organizations Disadvantages People may care more about their own function than about the company as a whole Managers develop functional expertise but lack knowledge of the other areas of the business Promotes functional differentiation not functional integration

Divisional Organization Groups all functions into a single division and duplicates functions across divisions . Act like separate businesses or profit centers and work autonomously to accomplish the goals of the entire enterprise.

Functional vs. Divisional Examples Functional Organization Central purchasing department Separate companywide marketing, production, design, and engineering departments Central city health department Plantwide inspection, maintenance, and supply departments Divisional Organization Purchasing unit for each division Each product group’s own experts in marketing, design, production, and engineering Separate health units for the school district and the prison Inspection, maintenance, and supply conducted by each production team

Ways to set up a divisional structure Product divisions all functions that contribute to a given product are organized under one product manager. Customer divisions built around groups of customers Geographic divisions structure around geographic regions

Matrix Organization An organization composed of dual reporting relationships in which some managers report to two superiors: functional manager divisional manager or project manager

Matrix Organizational Structure

Managing High Information-Processing Demands

Organizational Agility Agility Ability to act, and act fast, to meet customer needs and respond to other outside pressures.

Organizing around core competencies Identify existing core competencies Acquire or build core competencies that will be important for the future Keep investing in competencies Extend competencies to find new applications and opportunities for future markets

Managing core competencies Accumulate the right resources; discard the wrong resources Combine resources to sustain organization capabilities Leverage or exploit resources

Strategic Alliances Definition Formal relationship created among independent organizations with purpose of joint pursuit of mutual goals Success Criteria Individual excellence: both partners add value Importance: both partners want the relationship to work Interdependence: Partners need each other Investment: Partners devote financial and other resources to relationship Information: Partners communicate openly Integration: Partners develop shared ways of operating Institutionalization: Relationship has formal status with clear responsibilities Integrity: Both partners are trustworthy and honorable

An organizations’ ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage. -- Jack Welch Former CEO, General Electric

Learning Organizations Definition Organization skilled at creating, acquiring, and transferring knowledge Can modify behavior to reflect new knowledge and insights. Ingredients People engage in disciplined thinking and attention to details Search constantly for new knowledge and ways to apply it Review successes and failures carefully Benchmark best practices of other organizations Share ideas throughout organization

Downsizing Planned elimination of positions. Becoming a normal business practice as: global competition puts pressure on costs mergers cause functions to be consolidated new technologies and new ways of doing business Done appropriately can make firms more agile Can be traumatic for an organization and its employees

Effective Downsizing? Use downsizing only as a last resort Engage in careful analysis and strategic thinking in choosing positions to eliminate Train people to cope with new situation Identify and protect talented people Give special attention and help to those who have lost jobs Communicate constantly with people about process Invite ideas for alternative ways to operate more efficiently Identify how the organization will operate more effectively in the future, and emphasize positive future and the remaining employees’ new roles in attaining it

Organizing for Quality Improvement Total Quality Management (TQM) An integrative approach to management that supports the attainment of customer satisfaction through a wide variety of tools and techniques that result in high-quality goods and services

Deming’s 14 points of Quality Create constancy of purpose Adopt new philosophy Cease dependence on mass inspection End practice of awarding business on price tag Improve system of production and service constantly Institute training and retraining Institute leadership Drive out fear Break down barriers among departments Eliminate slogans and exhortations Eliminate numerical quotas Remove barriers to pride in workmanship Institute vigorous program of education and retraining Take action to accomplish transformation

ISO 9001 A series of quality standards developed by a committee working under the International Organization for Standardization to improve total quality in all businesses for the benefit of producers and consumers in more than 150 companies

8 Principles of ISO 9001 Customer focus Leadership Involvement of people Process approach System approach to management Continual improvement Factual approach to decision making Mutually beneficial supplier relationships

Organizing for Flexible Manufacturing Mass customization Production of varied, individually customized products at low cost of standardized, mass-produced products Computer-integrated manufacturing Computerized production efforts, including computer-aided design (CAD) and computer-aided manufacturing (CAM)

Lean Manufacturing An operation that strives to achieve highest possible productivity and total quality, cost-effectively, by eliminating unnecessary steps in production process and continually striving for improvement.

Conditions for Lean Manufacturing People are broadly trained Communication is informal and horizontal among line workers Equipment is general purpose Work is organized in teams or cells Supplier relationships are long-term and cooperative Product development is concurrent, not sequential, and is done by cross-functional teams

Just-in-Time (JIT) Operations A system that calls for subassemblies and components to be manufactured in very small lots and delivered to the next stage of the production process just as they are needed

Organizing for Speed JIT is a companywide philosophy oriented toward eliminating waste and improving materials throughout all operations. Offers efficiency only when costs of storing items are greater than costs of frequent delivery Simultaneous engineering incorporates the issues and perspectives of all functions from beginning of process

YOU should be able to L01: Define the characteristics of organization structure: organic or mechanistic, differentiation, and integration. L02: Summarize how authority operates and who generally holds top authority in a company. L03: Discuss how span of control affects structure and management effectiveness.

YOU should be able to L04: Explain how to delegate effectively. L05: Distinguish between centralized and decentralized organizations. L06: Define basic types of organization structures, and summarize their strengths. L07: Describe important mechanisms used to coordinate work. L08: Discuss how organizations can improve their agility through strategy, commitment to customers and use of technology.

Test Your Knowledge In the study by Lawrence and Lorsch, companies in complex, dynamic environments developed _____ levels of differentiation; and _____ levels of integration A) low; low B) intermediate; high C) high; high D) low; high E) high; low

Test Your Knowledge Define authority Who holds top authority in an organization?

Test Your Knowledge A wide span of control builds a ______________ organization. A) flat B) narrow C) tall D) bureaucratic E) formal

Test Your Knowledge Discuss the concepts of responsibility, authority, and accountability. What should a manager do when he/she has more responsibility than authority Why is this a problem?

Test Your Knowledge Ruby recently accepted a job with a large insurance firm as an internal auditor. Ruby has found that her new job is quite different than the internship she had at an accounting consulting firm. The insurance firm has strictly defined job responsibilities and lines of communication. It seems that for every decision that Ruby needs to make, approval must be obtained from upper management! Overall, she has found the atmosphere to be quite formal as compared to the internship. Ruby has concluded that the insurance firm has: A) a wide span of control. B) a high degree of centralization. C) decentralized authority. D) a matrix design. E) an ineffective structure.

Test Your knowledge Sports International (SI) began business by making shoes for athletes. They soon expanded into making shoes for non-athletic purposes. They now manufacture and distribute clothing, sporting equipment and protective sports gear worldwide. They are departmentalized by products sold to serious athletes, products sold to "weekend" athletes and products sold to sports teams. SI has utilized which form of departmentalization? A) Geographic B) Functional C) Matrix D) Customer E) Product

Test Your Knowledge Michael Shaffer's job as a representative of CommuniCo is to handle communications between the organization and the local community. Michael is best described as a(n): A) mutual adjustment officer. B) program manager. C) individual task force. D) liaison. E) none of the above.

Test Your Knowledge Flexible factories have the following advantages EXCEPT: A) Providing more production options. B) Having much shorter production runs. C) Being organized around products, in work cells or teams. D) Good for standardized products. E) Quicker to adapt to change.

BUS137 Chapter 6

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BUS137 Chapter 6