Organizing The Business Enterprise-PPT

Chapter 6Organizing the Business EnterpriseWhat is Organizational Structure?Specification of the jobs to be done within an organization and the ways in which they relate to one another. This allows the organization to achieve its goals. At some organizations the structure is rigid, at other it is more flexible.Determinants of OrganizationEvery business needs structure to operate. Organizational structure varies according to a firm’s mission, purpose, and strategy. Size, technology, and changes in environmental circumstancesalso influence structure.Although all organizations have the same basic elements, each develops the structure that contributes to the most efficient operations.Formal Organization expressed through anOrganization ChartDiagram depicting a company’s structure and showing employees where they fit into its operationsThe formal Organization chart also reflects theChain of Command–Reporting relationships within a companyThe Organizational ChartContemporary Landscape Services, Inc.President/OwnerMark FergusonRetail ShopManagerNurseryManagerLandscapeOperationsManagerBuyerOffice ManagerBuyerSupervisorResidential ManagerCommercial Manager6 -5The Building Blocks of Organizational StructureThe first step in developing the structure of any business, large or small, involves two activities:SpecializationDetermining who will do whatDepartmentalizationDetermining how people performing certain tasks can best be grouped togetherSpecialization and GrowthIn a very small organization, the owner may perform every job. As the firm grows, however, so does the need to specialize jobs so that others can perform them. Adam Smith in 1776 discovered if each of ten workers did all the steps of making pins each could make 200 a day. By specialization the group could make 48,000 a day.Remember also that organizations can overdo specialization. Why?DepartmentalizationDepartmentalizationProcess of grouping jobs into logical unitsProfit CenterSeparate company unit responsible for its own costs and profitsCost CenterSome company operations do not generate profitsDifferent method of DepartmentalizationCustomer DepartmentalizationDepartmentalization according to types of customers likely to buy a given productProduct DepartmentalizationDepartmentalization according to specific products being createdProcess DepartmentalizationDepartmentalization according to production processes used to create a good or serviceDepartmentalizationGeographic DepartmentalizationDepartmentalization according to areas served by a businessFunctional DepartmentalizationDepartmentalization according to groups’ functions or activitiesMultiple Forms of Departmentalization6 -11PresidentVice PresidentMarketingVice PresidentProductionVice PresidentFinanceTexas PlantManagerOregon PlantManagerFlorida PlantManagerConsumerProductsIndustrialProductsConsumerProductsIndustrialProductsConsumerProductsIndustrialProductsFunctional DepartmentalizationGeographical DepartmentalizationProduct DepartmentalizationEstablishing the Decision-Making HierarchyWho makes which decisions?The answer almost never focuses on an individual or even on a small group. The more accurate answer usually refers to the decision-making hierarchy. Developing a Decision-Making HierarchyAssign Tasks:Determine who can make decisions and specify how they should be made. Give the authorityto make decisions and the responsibilityor obligation to make them. Authority and responsibility go hand in hand.Performing TasksPerform Tasks:Implementing decisions that have been made. This involvesDelegationAssignment of a task, responsibility, or authority by a manager to a subordinateAccountabilityLiability of subordinates for accomplishing tasks assigned by managersFear of DelegatingMany managers actually have trouble delegating tasks to others. This is especially true in small businesses where the owner-manager started out doing everything. Why do some small business managers have trouble delegating effectively?They feel that employees can never do anything as well as they can.They fear that something will go wrong if someone else takes over a job.They lack time for long-range planning because they are bogged down in day-to-day operations.They sense they will be in the dark about industry trends and competitive products because of the time they devote to day-to-day operations.What can small business managers do to delegate effectively?Admit that they can never go back to running the entire show and that they can in fact prosper—with the help of their employees.They must learn to let go.Four reasons some managers in big companies don’t delegate as much or as well as they should:They fear that subordinates don’t really know how to do the jobThey fear that a subordinate might ―show the manager up‖ in front of others by doing a superb jobThey desire to keep as much control as possible over how things are doneThey simply lack the ability to effectively delegate to othersHow can managers in big companies learn to delegate more effectively?All managers should recognize that they can’t do everything themselves. If subordinates can’t do a job, they should be trained so that they can assume more responsibility in the future. Managers should recognize that if a subordinate performs well it also reflects favorably on the manager. A manager who simply doesn’t know how to delegate should seek specialized training in how to divide up and assign tasks to others.Distribute Authority:Determine whether the organization is to be centralized or decentralized.Centralized OrganizationOrganization in which most decision-making authority is held by upper-level managementDecentralized OrganizationOrganization in which a great deal of decision-making authority is delegated to levels of management at points below the top This is the current trend.Span of ControlNumber of people supervised by one managerFlat Organizational Structure--Vertical Structure.Characteristic of decentralized companies with relatively few layers of management and relatively wide spans of controlTypical Law FirmChief PartnerPartnersAssociatesRelatively wide span of control5 -21Tall Organizational Structure-VerticalCharacteristic of centralized companies with multiple layers of management and relatively narrow spans of controlUnited States ArmyGeneralColonelsMajorsCaptains & LieutenantsWarrant OfficersSergeantsCorporalsPrivates5 -22Relatively narrow span of control. At lower levels, where tasks are similar and simpler, span of control widens.6 -23Clark Equipment Corp.Forks & Small Earthmovers DivisionTrucks DivisionTools DivisionPurchasingMaterials HandlingFabricationPaintingAssemblySalesDistributionHuman Resources DepartmentEngineering DepartmentLine and Staff Organization—Line do the mainline functions/Staff assist StaffManagersLineManagersCommittee & Team Authority—Horizontal Organization—also becoming more popular.Authority granted to committees or work teams involved in a firm’s daily operationsBasic Forms of Organizational StructureOrganizations can structure themselves in almost an infinite number of ways based on the specialization, departmentalization, or decision-making hierarchies. The four basic forms of organizational structure that reflect the general trends followed by most firms are:•Functional•Divisional•Matrix•InternationalFunctional OrganizationForm of business organization in which authority is determined by the relationships between group functions and activitiesCompany Structured Around Basic Business FunctionsMarketingDepartmentOperationsDepartmentFinanceDepartmentDivisional OrganizationOrganizational structure in which corporate divisions operate as autonomous businesses under the larger corporate umbrellaFood Service DivisionInfant Foods DivisionCondiments DivisionStar-Kist Tuna DivisionPet Foods DivisionFrozen-Foods DivisionMisc. Products DivisionDivision: Department that resembles a separate business in producing and marketing its own productsMatrix OrganizationOrganizational structure in which teams are formed and team members report to two or more managersA matrix is a highly flexible form that is readily adaptable to changing circumstances.Matrix structures rely heavily on committee and team authority. Some companies use the matrix organization as a temporary measure to complete a specific project. The end of the project usually means the end of the matrix.Area SpecialistsMartha Stewart6 -29MagazinesBooksInternetRadio/NewspaperNetwork/Cable TVK-mart LineSears PaintCatalog LineSpecialty/RetailingCookingEntertainmentWeddingsCraftsGardeningHomeHolidaysChildrenMedia GroupMerchandising GroupMatrix Organization atInternational OrganizationApproaches to organizational structure developed in response to the need to manufacture, purchase, and sell in global marketsCEORetail Division ARetail Division BInternational DivisionLatin AmericaEuropeAsiaOrganizational Design for the21stCenturyBoundaryless Organizationsminimize or eliminate traditional boundaries and structures. Team Organizations havinglittle or no underlying functional hierarchy and rely almost exclusively on project-type teams. Virtual Organizationshave little or no formal structure. They typically have only a handful of permanent employees, a very small staff, and a modest administrative facility. Virtual Organization6 -32Contracted Manufacturing in AsiaContracted Administrative ServicesContracted Distribution & LogisticsContracted Sales & Marketing•Accounting•Human ResourcesCore Organization•Finance•Operations•ManagementInformal OrganizationThe formal organizationof a business is the part that can be seen and represented in chart form. The informal organizationwithin which people do their jobs in different ways and interact with other people in ways that do not follow formal lines of communication. The informal organization is sometimes just as powerful, if not more powerful, than the formal structure.Formal versus Informal Organizational SystemsInformal GroupsGroups of people who decide to interact among themselvesGrapevineInformal communication network that runs through an organization