4 functions of management

4 forms of planning

4 levels of management
RECHECK
CHAPTER 7 4 leadership styles
 Chapter 8

STRUCTURING
ORGANIZATIONS FOR
TODAY’S CHALLENGES

Introduction to Business Administration – Instructor: Phuoc Van Hanh

LEARNING OBJECTIVES

LO 8-1 Outline the basic principles of organization management.

LO 8-2 Compare the organizational theories of Fayol and Weber.
LO 8-3 Evaluate the choices managers make in structuring
organizations.
LO 8-4 Contrast the various organizational models.
LO 8-5 Identify the benefits of interfirm cooperation and coordination.
LO 8-6 Explain how organizational culture can help businesses
adapt to change.
 GETTING TO KNOW
Michele Buck,
President and CEO of the Hershey Company
 LEARNING OBJECTIVES

LO 8-1 Outline the basic principles of organization management.

LO 8-2 Compare the organizational theories of Fayol and Weber.
LO 8-3 Evaluate the choices managers make in structuring
organizations.
LO 8-4 Contrast the various organizational models.
LO 8-5 Identify the benefits of interfirm cooperation and coordination.
LO 8-6 Explain how organizational culture can help businesses adapt to
change.
 Building an Organization from the Bottom Up

Organizing, or structuring: determining what work needs to be

done.

Division of labor: dividing up the tasks among the owners.

Dividing tasks into smaller jobs is called job specialization.

The process of setting up individual departments to do specialized

tasks is called departmentalization.
Structuring an organization consists of

• Devising a division of labor (sometimes resulting in specialization).

• Setting up teams or departments to do specific tasks.
• Assigning responsibility and authority to people.
• Allocating resources.
• Assigning specific tasks.
• Establishing procedures for accomplishing the organizational objectives.
ADDITIONAL INFORMATION TO PUT IN YOUR GROUP REPORTS

Organize your imaginary business. Draw an organization chart.

*You can refer to the example on pages 196 – 197.

 LEARNING OBJECTIVES

LO 8-1 Outline the basic principles of organization management.

LO 8-2 Compare the organizational theories of Fayol and Weber.
LO 8-3 Evaluate the choices managers make in structuring
organizations.
LO 8-4 Contrast the various organizational models.
LO 8-5 Identify the benefits of interfirm cooperation and coordination.
LO 8-6 Explain how organizational culture can help businesses adapt to
change.
Until the 20th century, most businesses were rather small, the processes for
producing goods were relatively simple, and organizing workers was fairly easy.

Mass production: methods for efficiently producing large quantities of goods).

Usually, the bigger the plant, the more efficient production became.
Economies of scale

The situation in which companies

can reduce their production costs if
they can purchase raw materials in
bulk; the average cost of goods
goes down as production levels
increase.
 Fayol’s Principles of Organization

• Unity of command. Each worker is to report to one, and only one, boss.
• Hierarchy of authority. Managers give orders, and others follow.
• Division of labor. Functions are to be divided into areas of specialization.
• Subordination of individual interests to the general interest.
• Authority. Managers have the power to enforce obedience.
• Degree of centralization.
• Clear communication channels.
• Order.
• Equity. Managers treat employees and peers with respect and justice.
• Esprit de corps. A spirit of pride and loyalty.
 Max Weber and Organizational Theory

Weber’s principles of organization resembled Fayol’s.

In addition, Weber emphasized:

• Job descriptions.
• Written rules, decision guidelines, and detailed records.
• Consistent procedures, regulations, and policies.
• Staffing and promotion based on qualifications.
 Turning Principles into Organizational Design

Following theories like Fayol’s and Weber’s, managers in the late

1900s began designing organizations so that managers could control
workers. Many companies are still organized that way, with everything
set up in a hierarchy.

Hierarchy: a system in which one person is at the top of the

organization and there is a ranked or sequential ordering from the top
down of managers and others who are responsible to that person.
Fig 8.1 Typical organization chart
This is a standard chart with managers for major functions and supervisors reporting to the
managers.
Each supervisor manages three employees.
 Turning Principles into Organizational Design

Chain of command: the line of authority that moves from the top of
the hierarchy to the lowest level.

An organization chart is a visual device that shows relationships

among people and divides the organization’s work; it shows who
reports to whom.

Bureaucracy: An organization with many layers of managers who

set rules and regulations and oversee all decisions.
Organization chart
shows relationships
among people:
- who is accountable
for the completion of
specific work,
and
- who reports to whom.
 LEARNING OBJECTIVES

LO 8-1 Outline the basic principles of organization management.

LO 8-2 Compare the organizational theories of Fayol and Weber.
LO 8-3 Evaluate the choices managers make in structuring
organizations.
LO 8-4 Contrast the various organizational models.
LO 8-5 Identify the benefits of interfirm cooperation and coordination.
LO 8-6 Explain how organizational culture can help businesses adapt to
change.
 Decisions to Make in Structuring Organizations

When designing responsive organizations, firms have to make decisions

about several organizational issues:

(1) centralization versus decentralization,

(2) span of control,
(3) tall versus flat organization structures,
(4) departmentalization.
(1) Centralization versus decentralization

Centralized authority occurs when decision-making authority is

maintained at the top level of management.

Decentralized authority occurs when decision-making authority

is delegated to lower-level managers more familiar with local
conditions than headquarters management could be.
(1) Centralization versus decentralization

Fig 8.2 Advantages and disadvantages of centralized versus decentralized

authority
(1) Centralization versus decentralization
2) Span of control

Span of control describes the optimal number of subordinates

a manager supervises or should supervise.

The trend today is to expand the span of control as

organizations adopt empowerment.

*Empowerment works only when employees are given the

proper training and resources to respond.
(2) Span of control

Fig 8.4 Advantages and disadvantages of a narrow versus a broad span of control
(3) Tall versus flat organization structures

Tall organization structure: An organizational structure in which

the pyramidal organization chart would be quite tall because of
the various levels of management.

*The flatter the organization, the broader the span of control.

(3) Tall versus flat organization structures

Flat organization structure: An organization structure that

has few layers of management and a broad span of
control.

Figure 8.3 A flat organization structure

 (4) Departmentalization
Departmentalization divides organizations into separate units.

Fig 8.5 Ways to departmentalize

 (4) Departmentalization

Advantages:

• Workers can specialize their skills, expertise, or resource use.

• Workers work together more effectively.
• Employees can develop skills in depth and progress within a department
as they master more skills.
• The company can achieve economies of scale by centralizing all the
resources it needs and locate various experts in that area.
• Employees can coordinate work within the function, and top
management can easily direct and control various departments’
 (4) Departmentalization

Disadvantages:

• Departments may not communicate well.

• Employees may identify with their department’s goals rather than
the organization’s.
• The company’s response to external changes may be slow.
• People may not be trained to take different managerial
responsibilities; rather, they tend to become narrow specialists.
• Department members may engage in groupthink (they think
alike) and may need input from outside to become more creative.
 LEARNING OBJECTIVES

LO 8-1 Outline the basic principles of organization management.

LO 8-2 Compare the organizational theories of Fayol and Weber.
LO 8-3 Evaluate the choices managers make in structuring
organizations.
LO 8-4 Contrast the various organizational models.
LO 8-5 Identify the benefits of interfirm cooperation and coordination.
LO 8-6 Explain how organizational culture can help businesses adapt to
change.
 Organizational Models

Four ways to structure an organization:

(1) line organizations

(2) line-and-staff organizations
(3) matrix-style organizations
(4) cross-functional self-managed teams

The business community is in a period of transition, with some

traditional organizational models giving way to new structures.
(1) Line organizations

A line organization has direct two-way lines of responsibility, authority, and

communication running from the top to the bottom of the organization, with
everyone reporting to only one supervisor.

A line organization does not have any specialists who provide managerial
support.
(2) Line-and-staff organizations

Line personnel are responsible for directly achieving organizational goals,

and include production workers, distribution people, and marketing personnel.

Staff personnel advise and assist line personnel in meeting their goals, and
include those in marketing research, legal advising, information technology,
and human resource management.
(2) Line-and-staff organizations

Figure 8.6
A sample line-and-staff organization
(3) Matrix-style organizations

Matrix organization: An organization in which specialists from different

parts of the organization are brought together to work on specific projects
but still remain part of a line-and-staff structure.
Figure 8.7 A matrix organization
(4) Cross-functional self-managed teams

Cross-functional self-managed teams are groups of employees

from different departments who work together on a long-term
basis (as opposed to the temporary teams established in matrix-style
organizations)

Self-managed means that they are empowered to make decisions

without management approval.
 LEARNING OBJECTIVES

LO 8-1 Outline the basic principles of organization management.

LO 8-2 Compare the organizational theories of Fayol and Weber.
LO 8-3 Evaluate the choices managers make in structuring
organizations.
LO 8-4 Contrast the various organizational models.
LO 8-5 Identify the benefits of interfirm cooperation and coordination.
LO 8-6 Explain how organizational culture can help businesses adapt to
change.
 Managing the Interactions among Firms

Networking
Using communications technology and other means to link
organizations and allow them to work together on common objectives.

Benchmarking
Comparing an organization’s practices, processes, and products
against the world’s best.
Virtual corporation

A temporary networked organization

made up of replaceable firms that join
and leave as needed.

A virtual corporation has no permanent Figure 8.8 A virtual corporation

ties to the firms that do its production,
distribution, legal, and other work.
 Adapting to Change

Companies that are the most successful in adapting to change

have these common traits:

(1) They listen to customers.

(2) They have inspirational managers who drive new ideas
throughout the organizations.
(3) They often have had a close call with going out of
business.
Restructuring is redesigning an organization so it can more
effectively and efficiently serve its customers.

An inverted organization has contact people at the top and the

chief executive officer (CEO) at the bottom.
Companies based on this organizational structure support
frontline personnel with internal and external databases,
advanced communication systems, and professional assistance.
 Fig 8.9
Comparison of an inverted organizational structure
and a traditional organizational structure

Traditional Organization Inverted Organization

 LEARNING OBJECTIVES

LO 8-1 Outline the basic principles of organization management.

LO 8-2 Compare the organizational theories of Fayol and Weber.
LO 8-3 Evaluate the choices managers make in structuring
organizations.
LO 8-4 Contrast the various organizational models.
LO 8-5 Identify the benefits of interfirm cooperation and coordination.
LO 8-6 Explain how organizational culture can help businesses adapt to
change.
Organizational culture (or corporate culture) is the widely shared values
within an organization that foster unity and cooperation to achieve
common goals.

Usually, the culture of an organization is reflected in its stories, traditions,

and myths.
Formal organization
The structure that details lines of responsibility, authority, and position;
that is, the structure shown on organization charts.

Informal organization
The system that develops spontaneously as employees meet and
form cliques, relationships, and lines of authority outside the formal
organization; that is, the human side of the organization that does not
appear on any organization chart.