Session 6ORGANIZATIONAL

STRUCTURE

Mata kuliah : A0012 – Manajemen Umum Tahun : 2010

8-2

Learning Objectives• After studying Chapter 8, you will know:

– how differentiation and integration influence your organization’s structure

– how authority operates– the roles of the board of directors and the chief executive

officer– how span of control affects structure and managerial

effectiveness– how to delegate work effectively– the difference between centralized and decentralized

organizations

Outline Materi• Fundamentals of Organizing• The Vertical Structure• The Horizontal Structure• Organizational Integration• Looking Ahead

Bina Nusantara

8-4

Learning Objectives (cont.)• After studying Chapter 8, you will know:

– how to allocate jobs to work units– how to manage the unique challenges of the matrix

organization– the nature of important integrative mechanisms

8-5

Fundamentals Of Organizing• Organization chart

– depicts the positions in the firm and how they are arranged– provides a picture of the reporting structure

• Differentiation – aspect of the organization’s internal environment

•division of labor - assignment of different tasks to different people or groups

•specialization - process in which different individuals and units perform different tasks

– differentiation is high when there are many subunits and many kinds of specialists who think differently

8-6

Fundamentals Of Organizing (cont.)• Integration

– degree to which differentiated units work together and coordinate their efforts

• all the specialized tasks in an organization cannot be performed completely independently

• coordination - procedures that link the various parts of the organization to achieve the organization’s overall mission

– any job activity that links different work units performs an integrative function

– the more a firm is differentiated, the greater the need for integration among the units

8-7

Personnel Finance

Manufacturing Sales

Personnel Finance

Manufacturing Sales

Finance R&D Marketing Personnel

ChemicalProducts

MetalProducts

President

Conventional Organization Chart

8-8

The Vertical Structure• Authority in organizations

– authority - the legitimate right to make decisions and to tell other people what to do

• resides in positions rather than people– in private business enterprises, owners have ultimate authority

• traditionally authority has been the primary means of running an organization

8-9

• Authority in organizations (cont.)– board of directors - elected by the stockholders to run

the organization

• led by a chair• performs three functions

– selecting, assessing, rewarding, and perhaps replacing the CEO– determining the firm’s strategic direction and reviewing financial

performance– assuring ethical, socially responsible, and legal conduct

• inside directors - the firm’s top managers who sit on the board

– outside directors - are likely run other companies

• successful boards tend to be active, critical participants in determining company strategies

The Vertical Structure (cont.)

8-10

The Vertical Structure (cont.)• Authority in organizations (cont.)

– chief executive officer (CEO) - occupies the top of the organizational pyramid

• authority officially vested in the board of directors is assigned to the CEO

• CEO personally responsible to the board and owners– top management team - typically comprised of the CEO,

president, chief operating officer, chief financial officer, and other key executives

• frequently meet with the CEO to make important decisions

8-11

The Vertical Structure (cont.)• Hierarchical levels

– hierarchy - the authority levels of the organizational pyramid

• top management - strategic managers in charge of the entire organization

• middle management - in charge of plants or departments

• lowest levels - made up of lower management and workers

– called the operational level of the organization

– trend in U.S. is to reduce the number of hierarchical layers

• Span of control– the number of subordinates who report directly to a manager – narrow spans produce tall organizations– wide spans produce flat organizations

8-12

The Vertical Structure (cont.)• Delegation

– assignment of authority and responsibility to a subordinate

– can occur between any two individuals in any type of structure with regard to any task

– responsibility - assignment of a task that an employee is supposed to carry out

• common for people to have more responsibility than authority

– accountability - expectation that employees perform a job, take corrective action when necessary, and report upward on the status and quality of their performance

– managers remain responsible and accountable for their own actions and those of their subordinates

8-13

The Vertical Structure (cont.)• Delegation (cont.)

– advantages of delegation

• permits getting work done through others• manager saves time• manager frees herself/himself to devote energy

to other important, higher-level activities• provides subordinate with a more important job• from the organization’s perspective, jobs are

done more efficiently and cost-effectively

8-14

The Vertical Structure (cont.)• Decentralization

– result of the delegation of responsibility and authority– centralized organization - high-level executives make

most decisions and pass them down to lower levels for implementation

– decentralized organization - lower-level managers make important decisions

• most U.S. executives understand the importance of decentralizing decision making

8-15

The Horizontal Structure• Basic concepts

– departmentalization - subdividing the organization into smaller subunits

• line departments - have responsibility for the principle activities of the firm

– deal directly with the organization’s primary goods and services– line managers typically have:

» substantial authority and power» ultimate responsibility for major operating decisions» accountability for “bottom-line” results

• staff departments - provide specialized support for line units

– moving toward role focused on strategic support and expert advice

8-16

The Horizontal Structure (cont.)• Functional organization

– jobs (and departments) are specialized and grouped according to business functions and the skills they require

• e.g., production, marketing, R&D, human resources, and finance

– at the most basic level, functional structure is organized around the company’s value chain

•value chain - sequence of activities that flow from raw materials to the delivery of a product or service

– common in both large and small organizations– may be most appropriate in rather simple, stable environments

8-17

• Functional organization (cont.)– advantages of functional structure include:

• economies of scale can be realized• effective environmental monitoring• 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

The Horizontal Structure (cont.)

8-18

The Horizontal Structure (cont.)• Functional organization (cont.)

– disadvantages of functional structure

• people may care more about their own function than about company as a whole

• may lose focus on overall product quality and customer satisfaction

• managers do not develop knowledge of the other areas of the business

– become specialists, not generalists

• conflicts arise among functions and communications suffer accordingly

• high differentiation may create barriers to coordination across functions

8-19

ProcurementHuman

resources

Informationtechnology

services

Inboundlogistics

OperationsOutboundlogistics

MarketingAnd sales

Service

President

Line departments

Staff departments

Functional Structure

8-20

The Horizontal Structure (cont.)• Divisional organization

– units grouped around products, customers, or geographic regions

– groups all functions into a single division

• duplicates each function across all of the divisions

– separate divisions may act almost as separate businesses– work autonomously to achieve the goals of the

organization– several ways to create divisional structure

8-21

• Divisional organization (cont.)– product divisions - all functions that contribute to a

given product are organized under one manager

• advantages– information needs are managed more easily– people have full-time commitment to a particular product line– task responsibilities are clear– people receive broader training– flexibility of structure better suits it for unstable environments

• disadvantages – difficult to coordinate across product lines– managers may not acquire depth of functional knowledge– duplication of effort is expensive

The Horizontal Structure (cont.)

8-22

The Horizontal Structure (cont.)• Divisional organization (cont.)

– customer and geographical divisions

• build divisions around customer or geographical distinctions

• advantages– can focus on customer needs– can provide faster and better service

• disadvantage– duplication of activities across many customer groups and

geographic areas is expensive

8-23

Generalmanagers for:

New YorkPhiladelphia

Boston

Generalmanagers for:

ClevelandChicagoSt. Louis

Generalmanagers for:

RaleighAtlantaOrlando

Generalmanagers for:

SeattleSan FranciscoLos Angeles

Generalmanagers for:

DallasHouston

Albuquerque

Northeastregionalmanager

Midwestregionalmanager

Southeastregionalmanager

Pacificregionalmanager

ChairmanCEO

Southwestregionalmanager

Geographical Organization

8-24

The Horizontal Structure (cont.)• Matrix organization

– hybrid form of organization– dual reporting relationships in which some managers report to

two superiors

• one functional and one product– advantages

• higher degree of flexibility and adaptability– disadvantages

• violation of the unity of command principle– reporting to two superiors can create confusion

8-25

Productiongroup

Two-bossmanager

Engineeringgroup

Two-bossmanager

Personnelgroup

Two-bossmanager

Accountinggroup

Two-bossmanager

Matrix Organizational Structure

Productiongroup

Two-bossmanager

Engineeringgroup

Two-bossmanager

Personnelgroup

Two-bossmanager

Accountinggroup

Two-bossmanager

Accounting

ProjectManager

A

ProjectManager

B

Projectmanagement

Production

ChairmanCEO

Engineering PersonnelFunctionalmanagers

8-26

The Horizontal Structure (cont.)• Matrix organization (cont.)

– matrix survival skills - depend on position in the matrix

• the matrix diamond illustrates needed skills– matrix form today - resurgence based on:

– pressures to consolidate costs and be faster to market– need for coordination across countries in global business

• understanding of the matrix has increased– matrix is not a structure, but a process

» relationships allow information to flow through the organization

» norms, values, and attitudes shape how people think

8-27

Organizational Integration• Coordination by standardization

– standardization - establishing common rules and procedures that apply uniformly to everyone

• constrains actions• integrates various units by regulating what people do

– formalization - reliance on rules and regulations to promote conformance

• should apply to most (if not all) situations• most applicable in relatively stable and unchanging

circumstances

8-28

Organization Integration (cont.)• Coordination by plan

– interdependent units are required to meet deadlines and objectives that contribute to a common goal

– does not require a high degree of stability and routinization

• units free to modify their actions as long as they are able to meet deadlines and targets required for working with others

• Coordination by mutual adjustment– involves feedback and discussion to jointly determine how to approach

problems and devise mutually agreeable solutions– allows for flexible coordination to deal with novel problems– costly from the standpoint of time