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Chapter Seven

Creating a Flexible Organization

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Learning Objectives

1. Understand what an organization is and identify its characteristics.

2. Explain why job specialization is important.3. Identify the various bases for

departmentalization.4. Explain how decentralization follows from

delegation.5. Understand how the span of management

describes the organization.6. Understand how the chain of command is

established by using line and staff management.

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Learning Objectives

7. Describe the four basic forms of organizational structure: bureaucratic, matrix, cluster, and network team.

8. Summarize the use of corporate culture, intrapreneurship, committees, coordination techniques, informal groups, and the grapevine.

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What Is an Organization?

• A group of two or more people working together to achieve a common set of goals

• Developing organization charts– Organization chart

• A representation of the positions and relationships in an organization

– Chain of command• The line of authority that extends from the highest to

the lowest levels of the organization– Staff (advisory) positions

• Jobs that are not part of the direct chain of command in the organization

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A Typical Corporate Organization Chart

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Five Steps to Organizing a Business

1. Job design• Divide the work into separate parts and assign those

parts to positions2. Departmentalization

• Group the positions into manageable units3. Delegation

• Distribute responsibility and authority4. Span of management

• Determine the number of subordinates who will report to each manager

5. Chain of command• Designate the positions with direct authority and those

that are support positions

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Job Design

• Job specialization– The separation of activities into distinct tasks and the

assignment of different tasks to different people

• Rationale for specialization– The “job” of the organization is too large for one person to

accomplish

– A worker learning only a specific, highly specialized task should be able to learn to do it efficiently

– Workers do not lose time switching from one operation to another

– Specialization makes it easier to design machinery to assist those who do the job

– Specialization makes it easier to train new workers

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Class Exercise

• Job specialization is the separation of all organizational activities into distinct tasks and the assignment of different tasks to different people.1. What are the advantages of job

specialization?2. What are the disadvantages of job

specialization?3. What types of jobs lend themselves to

specialization?4. What types of jobs do not lend themselves to

specialization?

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Job Design

• Alternatives to job specialization

– Job rotation

• The systematic shifting of employees from one job to another to reduce boredom and dissatisfaction

– Job enlargement

• Adding tasks to a job to increase the variety of a worker’s activities

– Job enrichment

• Increasing the autonomy (self-governing) workers have in deciding how to do their jobs

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Types of Firms UsingJob Rotation by Industry

0% 10% 20% 30% 40% 50%

Manufacturing

Construction

Wholesale/Retail

Transportation/ Communication

Business & Finance

Services

Hourly Paid Salaried

Source: Tor Eriksson & Jaime Ortega, The Adoption of Job Rotation: Testing the Theories, May 26, 2004, http://www.hha.dk/nat/wper/04-3_tor.pdf

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Percentage of Firms UsingJob Rotation by Industry

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

<50 51-100 101-350 351-500 501+Hourly Paid Employees

Salaried Employees

Source: Tor Eriksson & Jaime Ortega, The Adoption of Job Rotation: Testing the Theories, May 26, 2004, http://www.hha.dk/nat/wper/04-3_tor.pdf

• Grouping jobs into manageable units• Common bases for departmentalization

– By function

– By product

– By location

– By customer

– Combinations

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Departmentalization

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Departmentalization by Function

Finance M arketing O perations

CEO

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Departmentalization by Product

Com puters Printers Softw are

CEO

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Departmentalization by Location

U.S. Region EuropeanRegion

AsianRegion

CEO

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Departmentalization by Customer

Hom eUsers

BusinessUsers

EducationalUsers

CEO

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Delegation, Decentralization, and Centralization

• Delegation– Assigning part of a manager’s work and power to

other workers– Responsibility

• The duty to do a job or perform a task– Authority

• The power within the organization to accomplish an assigned task.

– Accountability• The obligation to accomplish an assigned job or

task

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Steps in the Delegation Process

• The manager assigns responsibility

• The subordinate is empowered to do the task

• Ultimate accountability remains with the manager

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Decentralization of Authority

• Decentralized organization– Management consciously attempts to spread authority

widely in the lower levels of the organization

• Centralized organization– Authority is concentrated at the upper levels of the

organization

• Factors favoring decentralization– A complex and unpredictable business environment

– Decisions that carry low risk or that are unimportant

– Highly capable lower-level managers with strong decision-making skills

– Past practices of the firm in decentralizing its structure and decision-making processes

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The Span of Management

• Wide and narrow spans of control

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The Span of Management

• Organizational height– Flat organizations

• Have wider spans of management and fewer levels• Require managers to perform more administrative tasks and

to spend more time supervising subordinates

– Tall organizations• Have narrow spans of management and many levels• Have higher administrative costs (more managers)• May distort internal communications during passage of the

communications through the multiple levels of organization

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Debate Issue: Should Firms Use Downsizing When Employees Are No Longer Needed?

YES

• Downsizing can lead to quicker decision making, precise accountability, and harder-working employees.

• Downsizing can significantly reduce a firm’s salary expense when unneeded employees are terminated.

NO

• Employees are needed to perform their jobs or they wouldn’t have been hired in the first place.

• Downsizing is expensive because most companies must make severance payments and fund retirement plans.

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Chain of Command: Line and Staff Management

• Line management position– A position that is part of the chain of command;

includes direct responsibility for achieving the goals of the organization

• Line authority—the authority line managers have to make decisions and issue directives related to organizational goals

• Staff management position– A position created to provide support, advice, and

expertise within an organization• Advisory authority—the expectation that line managers

will consult with staff managers before making decisions• Functional authority—staff managers’ authority to make

decisions and issues directives within their area of expertise

Line and Staff Management

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Line-Staff Conflict

• Reasons for conflict– Staff managers often have more formal education– Staff managers are sometimes

younger and more ambitious– Line managers may perceive staff managers as a

threat– Staff managers may become angry if their

recommendations are not adopted• Minimizing conflict

– Integrate line and staff managers into one team– Ensure that responsibilities are clearly defined– Hold both line and staff managers accountable for

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Forms of Organizational Structure

• Bureaucratic structure– A management system based on a formal framework of authority

that is carefully outlined and precisely followed– Characteristics

1. A high level of job specialization2. Departmentalization by function3. Formal patterns of delegation4. A high degree of centralization5. Narrow spans of management, resulting in a tall organization6. Clearly defined line and staff positions

– Advantages• Inflexibility helps ensure fair and equitable treatment

– Disadvantages• Inflexibility creates problems in adapting to dynamic business

environments

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Forms of Organizational Structure

• Matrix structure– A structure that combines vertical and

horizontal lines of authority, usually by superimposing product departmentalization on functional departmentalization

– Authority flows both down and across

– Employees on cross-functional teams report to both the project manager in charge of the team and to their superiors in their home-base functional department

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A Matrix Structure

Source: Ricky W. Griffin, Management, 9th ed. Copyright © 2008 by Houghton Mifflin Company. Adapted with permission.

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The Matrix Structure

Advantages• Added flexibility• Increased productivity• Higher morale• Increases in creativity and

innovation• Personal development of team

members

Disadvantages• Chain of command

conflicts• May take longer to resolve

problems and reach solutions

• Personality clashes• Poor communications• Undefined individual roles• Unclear responsibilities• Difficulty in determining

how to reward individual and team performance

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Forms of Organizational Structure

• Cluster structure– An organization that consists primarily of teams with no

or very few underlying departments

– Also called “team” or “collaborative” structures

– Teams may move on to other projects or individual members may be reassigned to different teams and projects

– Strengths• Small teams allows for flexibility to change direction

quickly and try new things

– Weaknesses• Employees may be concerned about job security

• Increased stress due to rapid changes

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Forms of Organizational Structure

• Network structure (virtual organization)– An organization in which administration is the

primary function performed and most other functions such as engineering, production, and marketing are contracted out to other firms

– Strength• Flexibility allows the organization to adjust

quickly to changes– Weaknesses

• Difficulty controlling the quality of work by other organizations

• Low morale and high turnover of hourly workers• Vulnerability of relying on outside contractors

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Additional Factors That Influence an Organization

• Corporate culture– The inner rites, rituals, heroes,

and values of a firm

– Indicators of corporate culture• The physical setting (e.g., building and office layout)• Corporate statements about itself• How the company greets its guests• How employees spend their time at work (alone or in groups)

– Cultural change is needed when• The business environment changes• Company performance is mediocre• The company is growing or becomes a large firm

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Additional Factors That Influencean Organization

• Intrapreneurship– Intrapreneur—an employee who pushes an

innovative idea, product, or process through the organization while using the organization’s resources for idea development

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Elements Needed to Develop Successful Intrapreneurs

Encouragement by management and organization

Individual motivationTransparency, openness and communality Individual competenceEnabling working environmentEncouragement to innovationsDevelopment

Source: J. Heinonen and K. Korvela, “How About Measuring Intrapreneurship,” Turku School of Economics and Business Administration, 2003, http://www.tukkk.fi/pki/julkaisut/konferenssit/EISB2003/Heinonen_Korvela_EISB2003.pdf#search=%22data%20%20%22intrapreneurship%22%20-edu%22

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Additional Factors That Influencean Organization

• Committees– Types

• Ad hoc—created for a specific short-term purpose

• Standing—relatively permanent; charged with performing some recurring task

• Task force—established to investigate a major problem or pending decision

– Positive aspects• Members bring more information and knowledge; more

accurate decisions; results communicated more effectively

– Negative aspects• Decisions making takes longer; may reach unnecessary

compromises; one person may dominate

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Additional Factors That Influencean Organization

• Coordination techniques

– Managerial hierarchy

• The arrangement that provides for increasing authority at higher levels of management

– Rules and procedures

– Liaison to coordinate the activities of groups

– Committee to integrate complex coordination

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Additional Factors That Influencean Organization

• Informal organization– Patterns of behavior and interactions that stem from

personal, rather than official, relationships in the organization

– Informal groups• Formed by the members themselves to accomplish goals

that may or may not be relevant to the organization• Reasons for joining: the need for affiliation; agreement

with the goals of the group; desire to be accepted

– The grapevine• Informal communication network within an organization

that is completely separate from—and sometimes faster than—the organization’s formal communication channels

– May be accurate or distorted; managers should be aware and use appropriately

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Chapter Quiz

1. Solid vertical lines on an organization chart indicate relationships amonga) staff positions.b) employees.c) delegated positions.d) the chain of command.e) line and staff positions.

2. The systematic shifting of employees from one job to another is called joba) specialization.b) rotation.c) sharing.d) enlargement.e) enrichment.

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Chapter Quiz

3. Grouping all activities according to the geographic area in which they are located is departmentalization bya) function.b) employee.c) product.d) customer.e) location.

4. In a ______ organization, administrative costs are higher because more managers are needed.a) longb) flatc) talld) shorte) broad

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Chapter Quiz

5. The power to accomplish an assigned job is called a) authority.b) accountability.c) responsibility.d) delegation.e) obligation.

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Answers to Chapter Quiz

1. Solid vertical lines on an organization chart indicate relationships amonga) staff positions.b) employees.c) delegated positions.d) the chain of command.(Correct)e) line and staff positions.

2. The systematic shifting of employees from one job to another is called joba) specialization.b) rotation. (Correct)c) sharing.d) enlargement.e) enrichment.

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Answers to Chapter Quiz

3. Grouping all activities according to the geographic area in which they are located is departmentalization bya) function.b) employee.c) product.d) customer.e) location. (Correct)

4. In a __________ organization, administrative costs are higher because more managers are needed.a) longb) flatc) tall (Correct)d) shorte) broad

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Answers to Chapter Quiz

5. The power to accomplish an assigned job is called a) authority. (Correct)b) accountability.c) responsibility.d) delegation.e) obligation.