Read Chapter 7 - Creating a Flexible Organization

Read Chapter 7 - Creating a Flexible Organization

WHAT IS AN ORGANIZATION? An organization is a group of two or more people working together to achieve a common set of goals. A neighborhood dry cleaner owned and operated by a husband and wife team is an organization. So are IBM and Home Depot.

Developing Organization Charts. An organization chart is a diagram that represents the positions and relationships within an organization. (See Figure 7-1.)

The chain of command is the line of authority that extends from the highest to the lowest levels of the organization.

The positions represented by broken lines are not part of the direct chain of command; these are advisory, or staff, positions.

Many smaller organizations find organization charts useful. Some large organizations do not maintain complete, detailed charts because:

It is difficult to accurately chart a few dozen positions, much less the thousands that characterize larger firms.

Larger organizations are almost always changing which quickly makes the organization chart outdated.

Major Considerations for Organizing a Business. The factors to consider when deciding how to organize a firm include job design, departmentalization, delegation, span of management, and chain of command.

JOB DESIGN

Job Specialization. Job specialization is the separation of all organizational activities into distinct tasks and the assignment of different tasks to different people.

The Rationale for Specialization. Specialization is necessary for several reasons.

The “job” of most organizations is simply too large for one person to handle.

When a worker has to learn one specific, highly specialized task, that individual can learn it quickly and perform it efficiently.

The worker who is doing the same job over and over does not lose time changing operations.

The more specialized the job, the easier it may be to design specialized equipment.

The more specialized the job, the easier is the job training.

Alternatives to Job Specialization. Specialization can also have some negative consequences, such as employee boredom and dissatisfaction. Managers can minimize these issues.

Job rotation is the systematic shifting of employees from one job to another.

Job enlargement and job enrichment, along with other methods used to motivate employees, are discussed in Chapter 10.

Departmentalization is the process of grouping jobs into manageable units. Common bases of departmentalization are:

By Function. Departmentalization by function groups jobs that relate to the same organizational activity.

Many smaller and newer organizations departmentalize on function.

The disadvantages of this method are that it can lead to slow decision making and it tends to emphasize the department rather than the organization.

By Product. Departmentalization by product groups all activities related to a particular good or service.

This approach is often used by older and larger firms that produce and sell a variety of products.

By Location. Departmentalization by location groups all activities according to the defined geographic area in which they are performed.

By Customer. Departmentalization by customer groups all activities according to the needs of various customer populations.

Combinations of Bases. Many organizations use a combination of departmentalization bases. (See Figure 7-2.)

DELEGATION, DECENTRALIZATION, AND CENTRALIZATION. Delegation assigns work and power to other workers.

Delegation of Authority

Steps in Delegation. Three steps are generally involved in the delegation process. (See Figure 7-3.)

The manager must assign responsibility. Responsibility is the duty to do a job or perform a task.

A manager must grant authority, which is the power, within the organization, to accomplish an assigned job or task.

The manager must create accountability. Accountability is the obligation of a worker to accomplish an assigned job or task. Accountability is created, but it cannot be delegated

Barriers to Delegation. For several reasons, managers may be unwilling to delegate work.

A manager may not trust the employee to complete the task.

A manager may fear that a subordinate will do exceptional work and attract the attention of top management.

Some managers are so disorganized that they simply are not able to plan and assign work effectively.

Decentralization of Authority. The pattern of delegation throughout an organization determines the extent to which that organization is decentralized or centralized.

An organization in which management consciously attempts to spread authority widely across organization levels is said to be a decentralized organization.

An organization that systematically works to concentrate authority at the upper levels is a centralized organization.

A variety of factors can influence the extent to which a firm is decentralized.

The external environment in which the firm operates. The more complex or unpredictable the environment, the more likely it is that top management will let lower-level managers make important decisions because lower-level managers are closer to the problems.

The nature of the decision to be made. The riskier or more important the decisions that have to be made, the greater is the tendency to centralize decision making.

The decision-making abilities of lower-level managers.

A firm that has practiced centralization or decentralization is likely to maintain that same practice in the future.

In principle, neither decentralization nor centralization is right. What works for one organization may or may not work for another.

THE SPAN OF MANAGEMENT. The fourth major step of organizing a business is establishing span of management (or span of control), which is the number of workers who report directly to one manager.

Wide and Narrow Spans of Management. A wide span of management exists when a manager has a large number of subordinates. A narrow span exists when the manager has only a few subordinates. Several factors determine the span that is best for a particular manager.

Organizational Height. Organizational height is the number of layers, or levels, of management in a firm.

The span of management plays a direct role in determining an organization’s height. (See Figure 7-4.)

If the span of management is wide, fewer levels are needed, and the organization is flat.

If the span of management is narrow, more levels are needed, and the resulting organization is tall.

In a tall organization, administrative costs are higher because more managers are needed. Communication may become distorted.

Managers in a flat organization may have to perform more administrative duties because there are fewer managers.

FORMS OF ORGANIZATIONAL STRUCTURE. The four basic forms of organizational structure are line, line-and-staff, matrix, and network.

The Line Structure. A line structure is when the chain of command goes directly from person to person throughout the organization.

Managers within a line structure, called line managers, make decisions and give orders to subordinates to achieve the goals of the organization.

A line structure allows line managers to make decisions quickly with direct accountability because the decision maker only reports to one supervisor.

The downside of a line structure is that line managers are responsible for many activities and therefore must have a wide range of knowledge about all of them. Consequently, line structures are more popular in small organizations rather than in medium- and large-sized organizations where activities are more numerous and complex.

The Line-and-Staff Structure. A line-and-staff structure utilizes the chain of command from a line structure, but also provides line managers with specialists, called staff managers.

Staff managers provide support, advice, and expertise to line managers. They are not part of the chain of command but they do have authority over their assistants.

Both line and staff managers are needed for effective management, but the two positions differ in important ways. (See Figure 7-5.)

Line managers have line authority, which means that they can make decisions and issue directives relating to the organization’s goals.

Staff managers have advisory authority, which means they can provide advice to line managers. Staff managers also have functional authority, allowing them to make decisions and issue directives about their areas of expertise.

Conflict between line managers and staff managers can occur if line managers perceive that staff managers are a threat to their authority or if staff managers perceive that their recommendations are not being adopted by line managers. There are several ways to minimize this conflict.

Integrate line and staff managers into one team.

Ensure that the areas of responsibility of line and staff managers are clearly defined.

Hold line and staff managers accountable for the results of their activities.

The Matrix Structure. The matrix structure combines vertical and horizontal lines of authority.

The matrix structure occurs when product departmentalization is superimposed on a functionally departmentalized organization. (See Figure 7-6.)

Authority flows both down and across and employees report to more than one supervisor.

In a matrix structure, people from different departments are assigned to a group, called a cross-functional team, to work on a new project.

Frequently, cross-functional teams are charged with developing new products.

The project manager is in charge of the team, but employees on the team also report to their functional department supervisor.

Cross-functional teams may be temporary or permanent.

These teams are often empowered to make major decisions.

The matrix organization has several advantages.

One advantage is added flexibility.

This structure can increase productivity, raise morale, and nurture creativity and innovation.

Employees experience personal development by doing a variety of jobs.

The matrix organization also has several disadvantages.

Having employees report to more than one supervisor can cause confusion about who is in charge.

Like committees, teams may take longer to resolve problems and issues than individuals working alone.

Other difficulties may include personality clashes, poor communication, undefined individual roles, unclear responsibilities, and difficulties in finding ways to reward individual and team performance simultaneously.

Because more managers and support staff may be needed, a matrix structure may be more expensive to maintain.

The Network Structure. In a network structure (or virtual organization), administration is the primary function performed. Other functions are contracted out to other organizations.

This type of organization has only a few permanent employees consisting of top management and a few hourly clerical workers.

Leased equipment and facilities are temporary.

There is limited formal structure.

Flexibility allows an organization to quickly adjust to changes.

Managers may face some of the following challenges:

Controlling the quality of work performed by other organizations.

Low morale and high turnover among hourly workers.

A lack of clear hierarchy.

CORPORATE CULTURE. A corporate culture is generally defined as the inner rites, rituals, heroes, and values of a firm.

Corporate culture is generally thought to have a very strong influence on a firm’s performance over time.

Goffee and Jones identified four types of corporate cultures. (See Figure 7-7.)

Networked culture

Mercenary culture

Fragmented culture

Communal culture

Some experts believe that cultural change is needed when the company’s environment changes, such as when the industry becomes more competitive, the company’s performance is mediocre, or the company is growing rapidly.

COMMITTEES AND TASK FORCES

Several types of committees can be used within an organizational structure.

An ad hoc committee is created for a specific short-term purpose, such as reviewing the firm’s employee benefits plan.

A standing committee is a relatively permanent committee charged with performing a recurring task.

A task force is a committee established to investigate a major problem or pending decision.

Committees offer some advantages over individual action.

Several members are able to bring more information and knowledge to the task at hand.

Committees tend to make more accurate decisions and to transmit their results through the organization more effectively.

Disadvantages to using committees include the following:

Committee deliberations take much longer than individual action.

Unnecessary compromise may take place within the committee.

THE INFORMAL ORGANIZATION AND THE GRAPEVINE. Informal organization describes the pattern of behavior and interaction that stems from personal rather than official relationships.

An informal group is created by the group members themselves to accomplish goals that may or may not be relevant to the organization.

Workers may create an informal group to go bowling, form a union, get a particular manager fired or transferred, or share lunch.

Informal groups can be powerful forces in organizations. Managers should be aware of informal groups.

The grapevine is the informal communications network within an organization.

The grapevine is completely separate from—and sometimes much faster than—the organization’s formal channels of communication.

Managers would make a mistake if they tried to eliminate the grapevine. A more rational approach is to recognize the existence of the grapevine as a part (though an unofficial part) of the organization.