Download Chapter 8 Creating a Flexible Organization

Pride/Hughes/Kapoor Business, 10th Edition
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Chapter 7 Creating a Flexible Organization
1. Understand what an organization is and identify its characteristics
The way a company is organized—or sometimes reorganized—frequently reflects
its priorities. Sometimes that means low costs; other times it is customer satisfaction—or
something else entirely. Let’s start by explaining what an organization is. An
organization is a group of two or more people working together to achieve a common set
of goals. An organization can be very small or very large. Large, complex organizations
often use a diagram, called an organization chart, to represent the positions and
relationships within an organization. This can help people visualize the reporting
relationships and hierarchy in a firm because each position is shown by a shape, most
commonly a rectangle. The president is at the top, and each level of management is
represented by a row of horizontal rectangles. Solid vertical lines connect levels of
management to indicate the chain of command, which is the line of authority that extends
from the highest to the lowest levels of an organization. Other positions, such as legal
services and human resources, called staff or advisory positions, and are shown with
dotted lines because they are not in the direct chain of command.
Whether a firm is large or small, it must make five decisions about organization.
Those decisions involve job design, departmentalization, delegation, span of
management, and chain of command. Let’s discuss each of these decisions individually,
starting with job design. Job design involves dividing the work that is to be done by the
organization into separate parts, and assigning those parts to positions within the
organization. (LO 1 ends)
2. Explain why job specialization is important
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The separation of all organizational activities into distinct tasks and the
assignment of different tasks to different people is called job specialization. Why should
a firm use job specialization? For several reasons. First, because the “job” of the
organization is simply too large for one person. Second, because when a worker has to
learn only one or two specific tasks, he or she can do it very efficiently. Third, the worker
who is doing the same task over and over doesn’t have to lose time changing from one
operation to another. Fourth, specialized jobs may use specialized equipment to make the
task more efficient. And fifth, specialized jobs make training easier. Of course, the down
side to specialization is boredom and dissatisfaction. One way to fight this boredom is by
using a systematic shifting of employees from one job to another, a process called job
rotation. In job rotation, workers may work at one task for a week, then move to another
task for a week, and so on. (LO 2 ends)
3. Identify the various bases for departmentalization
After jobs are designed, they are grouped together into manageable working units,
a process called departmentalization. This the second step in setting up the organization.
Depending on the type of business, organizations may departmentalize on the basis of
function, product, location, or type of customer. Many organizations use more than one
basis. Departmentalization by function means grouping jobs together that relate to the
same organizational activity. As a result, marketing people work together, production
people work together, accounting people work together, and so on. Departmentalization
by product means that activities related to a particular product or service are grouped
together. So if an organization produces five major products, each product would have its
own marketing, accounting, and production group. Departmentalization by location
groups activities according to the defined geographic area in which they are performed.
This means an organization can respond quickly to the unique demands of different
locations. Departmentalization by customer groups activities according to the needs of
various customer populations. This allows a firm to focus on the specific needs of
specific customers. Most organizations use the combination of structures that best fits
their needs for customer service and efficiency. (LO 3 ends)
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4. Explain how decentralization follows from delegation
After jobs are designed and departmentalized, the third step, delegation, is
determined. Through delegation, part of a manager’s work and power is assigned to other
workers. This has to happen because no one can do everything. Delegation involves three
steps. The first is assigning responsibility. Responsibility is the duty to do a job or
perform a task. The second step is granting authority. Authority is the power, within the
organization, to accomplish an assigned job or task. The third step is creating
accountability. Accountability is the obligation of a worker to accomplish an assigned
task. It is important to remember that accountability can be created but not delegated. The
person who was originally given the task is ultimately responsible for seeing that the
result is achieved. Some managers are reluctant to delegate. They may fear that either the
person to whom a task is delegated will fail to come through or that the person will do
such a great job that he or she will attract attention of higher management. And some
managers are just so disorganized that they are unable to assign work effectively.
The amount of delegation that occurs in an organization is often a direct reflection
of its centralized or decentralized nature. In a decentralized organization, management
consciously attempts to spread authority widely in the lower levels of the organization.
Conversely, in a centralized organization, authority is concentrated in the upper levels of
management. The level of complexity and risk in the external environment as well as the
decision-making abilities of various managers can have a major influence on the
tendency toward centralization or decentralization of decision making. (LO 4 ends)
5. Understand how the span of management describes an organization
The fourth major step in organizing a business is establishing the span of
management. The span of management, sometimes called span of control, is simply the
number of workers who report directly to one manager. There is no ideal number, and
even within the same organization the number may vary from department to department.
In many cases, it depends on the tasks workers are performing. A wide span of
management exists when a manager has a large number of subordinates. The span may be
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wide when the workers are performing the same or very similar tasks, such as in customer
service. A wide span may also be most appropriate when both the manager and the
workers are very competent, when the organization has a well-established set of
operating procedures, and if relatively few new problems are expected to arise. A narrow
span, where the manager has relatively fewer subordinates, may be more appropriate
when workers are physically located far from each other, when the manager has a lot of
work to do in addition to supervising workers, when much interaction is required between
the manager and the workers, and if new problems arise frequently.
When an organization has wider spans of management, it tends to be flatter.
When it uses narrow spans of management, it tends to be taller, because there are more
levels. The number of layers, or levels, of management in a firm is called its
organizational height. Organizational height can have a direct bearing on a firm’s
communication and overall costs. (LO 5 ends)
6. Understand how the chain of command is established by using line and staff
management
The last step in organizing a business is establishing the chain of command. We
discussed this earlier when we talked about a firm’s organization chart. Recall that the
chain of command is the line of authority that extends from the highest to the lowest
levels of the organization. A line management position is part of the chain of command.
It includes direct responsibility for achieving the goals of the organization. A staff
management position, on the other hand, is a position created to provide support, advice,
and expertise within the organization. Staff management positions are not part of the
chain of command. Both positions are necessary for effective management, but line
managers have line authority, which means they can make decisions and issue directives.
Staff managers have advisory or functional authority, and act as consultants or express
their opinions based on their expertise. Conflict between line and staff managers is fairly
common in organizations, but integrating both line and staff managers in teams and
clearly defining areas of responsibility can minimize this issue. (LO 6 ends)
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7. Describe the four basis forms of organizational structure: bureaucratic, matrix,
cluster, and network
You now know the five decisions that have to be made when setting up an
organization: job design, departmentalization, delegation, span of management, and chain
of command. Now let’s turn to the problem of putting all the pieces together—and
determine what form or structure the organization will take. There are four basic forms:
bureaucratic, matrix, cluster, and network.
A bureaucratic structure is a management system based on a formal framework of
authority that is carefully outlined and precisely followed. It is characterized by a high
level of job specialization, departmentalization by function, formal patterns of delegation,
a high degree of centralization, narrow spans of management, and clearly defined line
and staff positions. It is not a good choice for organizations that require flexibility. The
matrix structure combines vertical and horizontal lines of authority, usually by
superimposing product departmentalization on a functionally departmentalized
organization. In this type of structure, authority flows both down and across.
Organizations that have set up a team environment function well in a matrix structure. In
fact, matrixes often use cross-functional teams consisting of a group of employees from
different departments who work together on a specific project. Cross-functional teams are
led by a project manager. Matrix structures offer flexibility and improved productivity
and morale, but employees can experience confusion in reporting relationships and the
cost to maintain them may be higher. The cluster structure-- also called a team or
collaborative structure--is an organization that consists primarily of teams with no or
very few underlying departments. Team members work together on a project until it is
complete. The team may stay together to work on another project or individual members
may be reassigned to other teams, depending on the needs of the organization. The cluster
structure is very flexible and tends to be willing to take risks, but some employees may
fear for job security and experience increased stress. The last type of structure is the
network structure. In a network structure, sometimes called a virtual organization,
administration is the primary function and most other functions are contracted out to
other firms. Flexibility also characterizes this structure, but quality control, high worker
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turnover, and vulnerability due to reliance on outside contractors are also issues to be
addressed. (LO 7 ends)
8. Summarize the use of corporate culture, intrapreneurship, committees,
coordination techniques, informal groups, and the gapevine
In addition to the nuts and bolts issues of infrastructure, organizations need to
consider several other factors. One of those is corporate culture. Corporate culture is
generally defined as the inner rites, rituals, heroes, and values of a firm. A firm’s culture
influences both its employees as well as the perception of those outside the organization.
The four distinct types of corporate cultures identified by researchers are networked,
mercenary, fragmented, and communal. Trying to change a corporate culture—even
when it desperately needs to be changed—can be a long-term, and not necessarily
successful, process. Another factor that influences an organization is its attitude toward
creativity and intrapreneurship. An intrapreneur is an employee who pushes an innovative
idea, product, or process through the organization. An intrapreneur makes use of the
skills and attributes of an organization to produce an innovation.
Organizations also have to set up committees to perform certain tasks. These too
can affect a firm’s structure. An ad hoc committee is created for a specific short-term
purpose, such as reviewing a firm’s benefits plan. When its job is done, the committee is
disbanded. A standing committee, on the other hand, is a relatively permanent committee
charged with performing some recurring task, such as budget review. The third and final
type of committee is a task force, which is established to investigate a major problem or
pending decision, such as a merger. In general, committees allow more information and
knowledge to be brought to the table, but decisions generally take much longer.
To coordinate organizational resources and minimize duplication, an organization
may make use of a managerial hierarchy, which is an arrangement that provides
increasing authority at higher levels of management. This way, one manager can
coordinate all activities related to particular resources and have the authority to make
decisions in that domain. In complex situations, a liaison, or go-between, may be used to
coordinate activities between two groups.
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Within an organization exists a structure that has nothing to with the organization
chart. This is called the informal organization and it includes the pattern of behavior and
interaction that stems from personal rather than official relationships. Within the informal
organization are informal groups and a phenomenon called the grapevine. Informal
groups are created by the members themselves to accomplish goals that may or may not
be relevant to the organization. Informal groups are often, but not always, social in nature
and can be powerful forces in an organization. The grapevine is the informal
communications network within an organization. Information passed through the
grapevine is fast, can go in any direction, and can be very accurate or totally distorted.
There is no way to eliminate it. (LO 8 ends)
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