Understanding business 11th by mchugh nickels chap008

CHAPTER 8

Structuring
Organizations for
Today’s
Challenges

McGraw-Hill/Irwin

Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.


LEARNING OBJECTIVES
1. Outline the basic principles of organization management.
2. Compare the organizational theories of Fayol and Weber.
3. Evaluate the choices managers make in structuring
organizations.
4. Contrast the various organizational models.
5. Identify the benefits of inter-firm cooperation and
coordination.
6. Explain how organizational culture can help businesses
adapt to change.
8-2


JENNA LYONS
J. Crew

• Joined J. Crew in 1990 as a junior
designer.
• Worked her way up the ladder by

emphasizing her commitment to
quality.
• Her management style is
compassionate and understanding.

8-3


NAME that COMPANY

This company maintains strict written rules and
decision guidelines. Those rules enable the firm
to deliver packages quickly because employees
don’t have to pause to make decisions –
procedures are clearly spelled out for them.

Name that company!

8-4


REORGANIZATION is for
EVERYONE

LO 8-1

• Many companies are reorganizing, especially those
in decline. Including:
- Auto makers
- Homebuilders

- Banks

• Adjusting to changing markets is normal in capitalist
economies.
• Companies must go back to basic organizational
principles and firm up the foundation.
8-5


STRUCTURING an ORGANIZATION

LO 8-1

• Create a division of labor
• Set up teams or departments
• Allocate resources
• Assign tasks
• Establish procedures
• Adjust to new realities
8-6


WOULD YOU SACRIFICE
SAFETY for PROFITS?
You own a lawn-mowing business and are aware of
the hazards in the job. But you’ve seen other
companies save money by eliminating safety
equipment. You’d also like to make more money.
• What do you do?
• Save money with less

safety precautions?
• What are the
consequences?
8-7


THE CHANGING ORGANIZATION

LO 8-2

• Often change in organizations is due to evolving
business environments:
- More global competition
- Declining economy
- Faster technological change
- Pressure to protect the environment

• Customer expectations have also changed
--Consumers today want high-quality products
with fast, friendly service and all at low cost.
8-8


HOW MUCH CHANGES
in a DECADE?

Source: Fast Company, www.fastcompany.com, accessed March 2014.

LO 8-2

8-9


PRODUCTION CHANGED
ORGANZIATION DESIGN

LO 8-2

• Mass production of goods led to complexities in
organizing businesses.
• Economies of Scale -Companies can reduce
their production costs by
purchasing raw materials
in bulk.

• The average cost of
goods decreases as
production levels rise.
8-10


FAYOL’S PRINCIPLES

• Unity of command
• Hierarchy of authority
• Division of labor
• Subordination of
individual interests to
the general interest
• Authority

LO 8-2

• Degree of
centralization
• Clear communication
channels
• Order
• Equity
• Esprit de corps

8-11


ORGANIZATIONS BASED on
FAYOL’S PRINCIPLES

LO 8-2

• Organizations in which
employees have no more
than one boss; lines of
authority are clear.
• Rigid organizations that often
don’t respond to customers
quickly.

8-12

WEBER’S PRINCIPLES

LO 8-2

• Employees just need to do what
they’re told.
• In addition to Fayol’s principles,
Weber emphasized:
- Job descriptions
- Written rules, decision guidelines
and detailed records
- Consistent procedures,
regulations and policies
- Staffing and promotion based on
qualifications

8-13


HIERARCHIES and COMMAND

LO 8-2

• When following Fayol and Weber, managers
control workers.
• Hierarchy -- A system in which one person is at the
top of an organization and there is a ranked or
sequential ordering from the top down.

• Chain of Command -- The line of authority that

moves from the top of the hierarchy to the lowest
level.

8-14


ORGANIZATIONAL CHARTS

LO 8-2

• Organization Chart -A visual device that
shows relationships
among people and
divides the organization’s
work; it shows who
reports to whom.

7-15


TYPICAL ORGANIZATION CHART

LO 8-2

8-16


BUREAUCRATIC ORGANIZATIONS

LO 8-2

• Bureaucracy -- An organization with many layers of
managers who set rules and regulations and oversee
all decisions.

• It can take weeks or months to have information
passed down to lower-level employees.
• Bureaucracies can annoy customers.

8-17


TEST PREP

• What do the terms division of labor and job
specialization mean?
• What are the principles of management outlined
by Fayol?
• What did Weber add to the principles of Fayol?

8-18


CENTRALIZATION or
DECENTRALIZATION?

LO 8-3

• Centralized Authority -- When decision-making is
concentrated at the top level of management.

• Decentralized
Authority -- When
decision-making is
delegated to lower-level
managers and employees
more familiar with local
conditions than
headquarters is.
8-19


CENTRALIZATION and
DECENTRALIZATION

LO 8-3

8-20


SPAN of CONTROL

LO 8-3

• Span of Control -- The optimal number of
subordinates a manager supervises or should
supervise.

• When work is standardized, broad spans of
control are possible.

• Appropriate span narrows at higher levels of the
organization.
• The trend today is to reduce middle managers
and hire better low-level employees.
8-21


ORGANIZATIONAL STRUCTURES

LO 8-3

• Structures determine the way the company
responds to employee and customer needs.
• Tall Organization Structures -- An organizational
structure in which the organization chart would be tall
because of the various levels of management.

• Flat Organization Structures -- An organizational
structure that has few layers of management and a
broad span of control.
8-22


FLAT ORGANIZATIONAL
STRUCTURE

LO 8-3

8-23

ADVANTAGES and DISADVANTAGES of
the DIFFERENT SPANS of CONTROL

LO 8-3

8-24


DEPARTMENTALIZATION

LO 8-3

• Departmentalization -- Divides organizations into
separate units.

• Workers are grouped by skills and expertise to
specialize their skills.

8-25