Chapter 6

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives L01: Define the characteristics of organization structure: organic or mechanistic, differentiation, and integration. L02: Summarize how authority operates and who generally holds top authority in a company. L03: Discuss how span of control affects structure and management effectiveness. Learning Objectives (cont?d) L04: Explain how to delegate effectively. L05: Distinguish between centralized and decentralized organizations. L06: Define basic types of organization structures, and summarize their strengths. L07: Describe important mechanisms used to coordinate work. L08: Discuss how organizations can improve their agility through strategy, commitment to customers and use of technology. Traditional Organizing Organization chart ?reporting structure and division of labor in an organization. Mechanistic organization ? a formal structure intended to promote internal efficiency. Modern Organizing Organic Structure: An organizational form that emphasizes flexibility characterized by: Broader responsibilities that change as the need arises Communication through advice and information Decentralized decision making and influence Expertise is highly valued Reliance on judgment rather than rules Obedience to authority is less important than commitment to the organization?s goals. Employees depend more on one another and relate more informally and personally. Fundamentals of Organizing Differentiation: an aspect of the organization?s internal environment created by job specialization and the division of labor. Integration: The degree to which differentiated work units work together and coordinate their efforts. Differentiation is? High when an organization has many subunits and many specialists who think differently Created through Division of labor ? when the work of the organization is subdivided into smaller tasks to be performed by individuals. Specialization ? different people or groups perform specific parts of the larger task. Coordination The procedures that link the various parts of an organization to achieve the organization?s overall mission. Integration The degree to which differentiated work units work together and coordinate their efforts. Accomplished through structural mechanisms Any job activity that links work units High differentiation and high integration leads to success in dynamic environments. Test Your Knowledge In the study by Lawrence and Lorsch, companies in complex, dynamic environments developed _____ levels of differentiation; and _____ levels of integration A) low; low B) intermediate; high C) high; high D) low; high E) high; low Vertical Differentiation Authority within an organization, the board of directors, the chief executive officer, and hierarchical levels. Horizontal Differentiation Deals with issues of departmentalization that create functional, divisional, and matrix organizations. The Vertical Structure Authority ? legitimate right to make decisions and to tell other people what to do. Formal authority Based on formal position e.g., Board of directors, Chief executive officer, Top management team Informal authority Based on expertise, experience, or personal qualities e.g., scientists, computer-savvy employees Hierarchy Three broad levels of the organizational pyramid Top management Middle management Operational management Test Your Knowledge Define authority Who holds top authority in an organization? Span of Control The number of subordinates who report directly to an executive or supervisor The optimal span of control maximizes effectiveness by balancing two considerations: Must be narrow enough to permit managers to maintain control over subordinates Must not be so narrow that it leads to overcontrol and an excessive number of managers overseeing a few subordinates When should span be wide? The work is clearly defined and unambiguous Subordinates are highly trained and have access to information The manager is highly capable and supportive Jobs are similar and performance measures are comparable Subordinates prefer autonomy to close supervisory control Test Your Knowledge A wide span of control builds a ______________ organization. A) flat B) narrow C) tall D) bureaucratic E) formal Delegation The assignment of new or additional responsibilities to a subordinate. Requires a subordinate to report back to his or her boss about how effectively the assignment was carried out. Fundamental feature of management at all levels Is this delegation? Call Tom Burton at Nittany Office Equipment. Ask him to give you the price list on an upgrade for our personal computers. I want to move up to a Core 2 Duo processor with 4 gigs of RAM and at least a 500-gigabyte hard drive. Ask them to give you a demonstration, and let them try it out. Have them write up a summary of their needs and the potential applications they see for the new systems. Then prepare me a report with the costs and specifications of the upgrade for the entire department. Oh, yes, be sure to ask for information on service costs. Responsibility and Accountability Responsibility: A person is assigned a task that an employee is supposed to carry out. Accountability: The expectation that employees will perform a job, take corrective action when necessary, and report upward on the status and quality of their performance Advantages of Delegation Leverages the manager?s energy and talent and those of his or her subordinates Conserves a manager?s time Develops effective subordinates Gives the subordinate a more important job Subordinate gains an opportunity to develop new skills and demonstrate potential for additional responsibilities and perhaps promotion Promotes a sense of being an important, contributing member of the organization leading to stronger commitment, perform their tasks better, and engage in more innovation. Steps in Effective Delegation Test Your Knowledge Discuss the concepts of responsibility, authority, and accountability. What should a manager do when he/she has more responsibility than authority Why is this a problem? Centralized vs. Decentralized Centralized: An organization in which high-level executives make most decisions and pass them to lower levels for implementation. Decentralized: An organization in which lower level managers make important decisions. Test Your Knowledge Ruby recently accepted a job with a large insurance firm as an internal auditor. Ruby has found that her new job is quite different than the internship she had at an accounting consulting firm. The insurance firm has strictly defined job responsibilities and lines of communication. It seems that for every decision that Ruby needs to make, approval must be obtained from upper management! Overall, she has found the atmosphere to be quite formal as compared to the internship. Ruby has concluded that the insurance firm has: A) a wide span of control. B) a high degree of centralization. C) decentralized authority. D) a matrix design. E) an ineffective structure. The Horizontal Structure Line departments ? those who have responsibility for the principal activities of the firm. Staff departments ? those who provide specialized or professional skills that support line departments Functional Organizations Departmentalization around specialized activities such as production, marketing, and human resources. Advantages Economies of scale can be realized Monitoring of the environment is more effective Performance standards are better maintained People have 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 Functional Organizations Disadvantages People may care more about their own function than about the company as a whole Managers develop functional expertise but lack knowledge of the other areas of the business Promotes functional differentiation but not functional integration The Functional Organization Divisional Organization Groups all functions into a single division and duplicates functions across all the divisions. Act almost as separate businesses or profit centers and work autonomously to accomplish the goals of the entire enterprise. The Divisional Organization Functional vs. Divisional Functional Organization A central purchasing department Separate companywide marketing, production, design, and engineering departments A central city health department Plantwide inspection, maintenance, and supply departments Divisional Organization A purchasing unit for each division Each product group?s own experts in marketing, design, production, and engineering Separate health units for the school district and the prison Inspection, maintenance, and supply conducted by each production team How to set up a divisional structure Product divisions ? all functions that contribute to a given product are organized under one product manager. Customer divisions ? built around groups of customers Geographic divisions ? structure around geographic regions Matrix Organization An organization composed of dual reporting relationships in which some mangers report to two superiors ? a functional manger and a divisional manager. Matrix Organizational Structure Matrix Survival Skills Top executives must learn to balance power and emphasis between the product and functional orientations. Middle managers must learn how to be responsible to two superiors, prioritizing multiple demands and reconciling conflicting orders. Network Organization A collection of independent, mostly single-function firms that collaborate on a good or service. A web of relationships among many firms. Flexible arrangement among designers, suppliers, producers, distributors, and customers in which each firm is able to pursue its own distinctive core competence Dynamic Network Temporary arrangements among partners that can be assembled and reassembled to adapt to the environment. Held together by contracts that stipulate results expected rather than by hierarchy and authority For Networks to be Successful The firm must choose the right specialty The firm must choose collaborators that also are excellent at what they do and provide complementary strengths The firm must make certain that all parties fully understand the strategic goals of the partnership Each party must be able to trust all the others with strategic information and also trust that each collaborator will deliver quality products even if the business grows quickly and makes heavy demands Who are brokers? Persons who assemble and coordinate participants in a network Designers: network architects who envision a set of groups or firms whose collective expertise could be focused on a particular good or service. Process engineers: network cooperators who take the initiative to lay out the flow of resources and relationships Nurturer: network developers who nurture and enhance the network to make certain the relationships are healthy and mutually beneficial Test Your knowledge Sports International (SI) began business by making shoes for athletes. They soon expanded into making shoes for non-athletic purposes. They now manufacture and distribute clothing, sporting equipment and protective sports gear worldwide. They are departmentalized by products sold to serious athletes, products sold to "weekend" athletes and products sold to sports teams. SI has utilized which form of departmentalization? A) Geographic B) Functional C) Matrix D) Customer E) Product Organizational Integration The more differentiated the organization, the more difficult integration may be. Managers have to foster coordination among interdependent units and individuals Standardization Establishing common routines and procedures that apply uniformly to everyone. Managers may establish standards for which types of computer equipment the organization will use. Formalization The presence of rules and regulations governing how people in the organization interact. Written policies regarding attendance, dress, and decorum are examples of formalization Coordination by? Plan ? interdependent units are required to meet deadlines and objectives that contribute to a common goal Mutual adjustment ? units interact with one another to make accommodations in order to achieve flexible coordination Coping with high uncertainty and heavy information demands? Reduce the need for information Create slack resources Create self-contained tasks Increase information-processing capability Invest in information systems Create horizontal relationships Managing High Information-Processing Demands Test Your Knowledge Michael Shaffer's job as a representative of CommuniCo is to handle communications between the organization and the local community. Michael is best described as a(n): A) mutual adjustment officer. B) program manager. C) individual task force. D) liaison. E) none of the above. Organizational Agility Agility ? being able to act, and act fast, to meet customer needs and respond to other outside pressures. Organizations accomplish agility through its strategy, its customers, and its technology Organizing around core competencies Identify existing core competencies Acquire or build core competencies that will be important for the future Keep investing in competencies, so the firm remains world-class and better than competitors Extend competencies to find new applications and opportunities for the markets of tomorrow Managing core competencies Accumulate the right resources Determine the resources needed, acquire and develop resources, and eliminate resources that don?t provide value Combine the resources in ways that give the organization capabilities e.g., researching new products or resolving problems for customers Leverage or exploit their resources Identify the opportunities where their competencies deliver value to customers, coordinate and deploy them to respond to opportunities Strategic Alliances A formal relationship created among independent organizations with the purpose of joint pursuit of mutual goals Criteria for true strategic alliance partnerships Individual excellence: both partners add value Importance: both partners want the relationship to work Interdependence: Partners need each other Investment: Partners devote financial and other resources to the relationship Information: Partners communicate openly about goals, technical data, problems, and changing situations More criteria for true strategic alliance partnerships Integration: Partners develop shared ways of operating: they teach each other and learn from each other. Institutionalizaiton: The relationship has formal status with clear responsibilities Integrity: Both partners are trustworthy and honorable Learning Organizations An organization skilled at creating, acquiring, and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights. Ingredients for a learning organization Their people engage in disciplined thinking and attention to details They search constantly for new knowledge and ways to apply it They carefully review successes and failures They benchmark, that is, identify and implement the best practices of other organizations They share ideas throughout the organization via reports, information systems, informal discussions, site visits, education and training High-involvement organizations An organization in which top management ensures that there is consensus about the direction in which the business is heading Leader seeks input from his or her top management team and from lower levels of the company Lower-level employees have a direct relationship with a customer or supplier and thus receive feedback and are held accountable for delivering a good or service Downsizing Planned elimination of positions. Becoming a normal business practice as global competition puts pressure on costs, mergers cause functions to be consolidated, and new technologies and new ways of doing business Done appropriately can make firms more agile Can be traumatic for an organization and its employees Effective Downsizing? Use downsizing only as a last resort Engage in careful analysis and strategic thinking in choosing positions to eliminate Train people to cope with the new situation Identify and protect talented people Give special attention and help to those who have lost their jobs. Communicate constantly with people about the process, and invite ideas for alternative ways to operate more efficiently Identify how the organization will operate more effectively in the future, and emphasize this positive future and the remaining employees? new roles in attaining it Organizing for Quality Improvement Total Quality Management ? An integrative approach to management that supports the attainment of customer satisfaction through a wide variety of tools and techniques that result in high-quality goods and services Deming?s 14 points of Quality Create constancy of purpose Adopt the new philosophy Cease dependence on mass inspection End the practice of awarding business on price tag alone Improve constantly and forever the system of production and service Institute training and retraining Institute leadership Drive out fear Break down barriers among departments Eliminate slogans, exhortations, and arbitrary target Eliminate numerical quotas Remove barriers to pride in workmanship Institute a vigorous program of education and retraining Take action to accomplish the transformation ISO 9001 A series of quality standards developed by a committee working under the International Organization for Standardization to improve total quality in all businesses for the benefit of producers and consumers in more than 150 companies 8 Principles of ISO 9001 Customer focus Leadership Involvement of people Process approach System approach to management Continual improvement Factual approach to decision making Mutually beneficial supplier relationships Woodward?s Three Basic Technologies Small batch technologies ? when goods or services are provided in very low volume. Large batch technologies ? when goods or services are mass produced. Continuous process technologies ? technologies that do not stop and start Organizing for Flexible Manufacturing Mass customization ? The production of varied, individually customized products at the low cost of standardized, mass-produced products Computer-integrated manufacturing ? a host of computerized production efforts, including computer-aided design and computer-aided manufacturing Key Features in Mass Customization Flexible vs. Traditional Factories Flexible Shorter production runs, with many different products Organized around products, in work cells or teams Use local or decentralized scheduling Traditional Long production runs, generating high volumes of standardized products Move parts down the line from one location in the production sequence to the next Use centralized scheduling Lean Manufacturing An operation that strives to achieve the highest possible productivity and total quality, cost-effectively, by eliminating unnecessary steps in the production process and continually striving for improvement. Conditions for Lean Manufacturing People are broadly trained rather than specialized Communication is informal and horizontal among line workers Equipment is general purpose Work is organized in teams, or cells Supplier relationships are long-term and cooperative Product development is concurrent, not sequential, and is done by cross-functional teams Just-in-Time Operations A system that calls for subassemblies and components to be manufactured in very small lots and delivered to the next stage of the production process just as they are needed Organizing for Speed JIT is a companywide philosophy oriented toward eliminating waste and improving materials throughout all operations. Offer efficiency only when the costs of storing items are greater than the costs of frequent delivery Simultaneous engineering incorporates the issues and perspectives of all the functions from the beginning of the process Test Your Knowledge Flexible factories have the following advantages EXCEPT: A) Providing more production options. B) Having much shorter production runs. C) Being organized around products, in work cells or teams. D) Good for standardized products. E) Quicker to adapt to change. YOU should be able to L01: Define the characteristics of organization structure: organic or mechanistic, differentiation, and integration. L02: Summarize how authority operates and who generally holds top authority in a company. L03: Discuss how span of control affects structure and management effectiveness. YOU should be able to L04: Explain how to delegate effectively. L05: Distinguish between centralized and decentralized organizations. L06: Define basic types of organization structures, and summarize their strengths. L07: Describe important mechanisms used to coordinate work. L08: Discuss how organizations can improve their agility through strategy, commitment to customers and use of technology.