Chapter 8
- THE CHANGING
ORGANIZATION.
- Never before has
business changed so quickly.
- Much of that change
is due to the changing business environment, including more global
competition, faster technological change, and changes in consumer
expectations.
- Managing change has
become a critical managerial function.
- Organizations in
the past were designed so that managers could control workers rather than
to please the customer.
- The newest forms of
organization are designed to better serve the customer.
THE HISTORICAL
DEVELOPMENT OF ORGANIZATIONAL DESIGN.
- Not until the 20th
century and introduction of mass production did business organizations
grow complex and difficult to manage.
- The bigger the
plant, the more efficient production became, a concept called
ECONOMY OF SCALE.
- The text discusses
two major organization theorists:
- The text
discusses two major organization theorists:
- MAX WEBER
(The Theory of Social and Economic Organizations in
Germany about the same
time.)
- FAYOL’S PRINCIPLES
OF ORGANIZATION.
- Fayol introduced
principles such as:
- UNITY OF
COMMAND. Each worker is to
report to only one boss.
- HIERARCHY OF
AUTHORITY. One should know
to whom to report.
- DIVISION OF
LABOR. Functions were
divided into areas of specialization.
- SUBORDINATION
OF INDIVIDUAL INTERESTS TO THE GENERAL INTERESTS.
Goals of the organization were to be
considered more important then personal goals.
- AUTHORITY.
Managers should give orders and expect them to be carried out.
- DEGREE OF
CENTRALIZATION. The
decisions needed to be made by top management depends upon the size of
the organization.
- CLEAR
DEFINITION OF COMMUNICATION CHANNELS.
- ORDER.
"A place for everything and everything in its place."
- EQUITY.
Employees should be treated fairly and justly.
- ESPRIT DE
CORPS. Employees should be
proud of and loyal to the organization.
- These principles
have been taught for years, becoming synonymous with the concept of
management.
- These principles
led to rigid organizations.
- MAX WEBER AND
ORGANIZATION THEORY.
- Weber promoted the
pyramid-shaped organization structure.
- Weber put great
trust in managers and felt the less decision making employees had to do,
the better.
- Today, however,
many firms believe that workers are the best source of ideas, and
managers are there to support workers.
- WEBER’S
PRINCIPLES were similar to
Fayol’s with the addition of:
- JOB
DESCRIPTIONS.
- WRITTEN RULES.
- CONSISTENT
PROCEDURES, REGULATIONS, AND POLICIES.
- STAFFING AND
PROMOTIONS BASED ON QUALIFICATIONS.
- Today, many
organizations are attempting to rid themselves of the pyramid structure
because it slows the process of change.
- Some firms are
eliminating managers and non-managers and giving more power to lower-level
employees, called DOWNSIZING, or RIGHTSIZING.
- TURNING MANAGERIAL
CONCEPTS INTO ORGANIZATIONAL DESIGN.
- ORGANIZATIONAL
DESIGN is the structuring of
workers so that they can best accomplish all the goals of the firm.
- A
HIERARCHY is a system in which one
person is at the top of the organization and there is a ranked or
sequential ordering from the top down of managers who are responsible to
that person.
- Some
organizations have as many as 10 to 14 layers of management between the
chief executive officer and the lowest-level employee.
- BUREAUCRACY
is the term used in organizations to describe having many layers of
management who set rules and regulations and participate in all decisions.
- Decision making may
take too long to satisfy customers.
- To make customers
happy, organizations are giving employees more power to make decisions on
their own, known as EMPOWERMENT.
- BUREAUCRATIC
ORGANIZATIONS EMPHASIZE FUNCTIONAL SEPARATION.
- In a bureaucracy:
- CHAIN OF
COMMAND goes from the top
down
- Organizations are
SET UP BY FUNCTION.
- Organizations are
SET UP BY FUNCTION.
- COMMUNICATION
among departments is minimal.
- Today such
organizations aren’t very responsive to customer wants and needs.
- Today such
organizations aren’t very responsive to customer wants and needs.
- RESTRUCTURING
is redesigning an organization so that it can more effectively and
efficiently serve its customers.
- TALL VERSUS FLAT
ORGANIZATION STRUCTURES.
- TALL
ORGANIZATIONS have many layers
of management.
- The organization
chart becomes very tall because of the levels of management.
- Communication is
distorted as it flows through these layers.
- The cost of all
these managers and support people was high.
- FLAT
ORGANIZATIONS cut out
management layers and expand sideways instead.
- The trend is
toward more flat organization structures.
- These structures
are usually much more responsive to customer demands because
decision-making power may be given to lower-level employees.
- CHOOSING THE
APPROPRIATE SPAN OF CONTROL.
- CHOOSING THE
APPROPRIATE SPAN OF CONTROL.
- At lower levels,
it is possible to implement a wide span of control.
- The number
narrows at higher levels of the organization.
- Variables in span
of control include:
- CAPABILITIES
OF THE MANAGER. The more
experienced, the broader the span of control.
- CAPABILITIES
OF THE SUBORDINATES. The
more need for supervision, the narrower the span of control.
- COMPLEXITY OF
THE JOB.
- GEOGRAPHICAL
CLOSENESS. The more
concentrated the work area, the broader the span of control.
- FUNCTIONAL
SIMILARITY. The more
similar the employees’ functions are, the broader the span of control.
- NEED FOR
COORDINATION. The greater
the need for coordination, the narrower the span of control.
- PLANNING
DEMANDS. The more involved
the plan, the narrower the span of control might be.
- FUNCTIONAL
COMPLEXITY. The more
complex, the narrower the span of control.
- Other factors to
consider include professionalism of superiors and subordinates and the
number of new problems that occur in a day.
- The span of control
varies widely.
- The trend is to
expand the span of control as organizations get rid of middle managers.
- ADVANTAGES AND
DISADVANTAGES OF DEPARTMENTALIZATION.
-
DEPARTMENTALIZATION is
dividing organizational functions into separate units.
- The traditional
way to departmentalize is by function.
- FUNCTIONAL
STRUCTURE is the grouping of
workers into departments based on similar skills, expertise, or resource
use.
- The ADVANTAGES
of functional departmentalization are:
- It enables
employees to specialize.
- SKILLS CAN BE
DEVELOPED IN DEPTH.
- It allows for
ECONOMIES OF SCALE as resources can be centralized.
- There is GOOD
COORDINATION within the function.
- The
DISADVANTAGES of departmentalization are:
- LACK OF
COMMUNICATION between
departments.
- EMPLOYEES
IDENTIFY WITH THE DEPARTMENT
rather than the total organization.
- .RESPONSE TO
EXTERNAL CHANGE IS SLOW.
- Employees become
NARROW SPECIALISTS.
- People in the
same department tend to think alike (engage in GROUP THINK.)
- Businesses are now
trying to REDESIGN THEIR STRUCTURES to increase communication among
employees.
- DIFFERENT WAYS TO
DEPARTMENTALIZE.
- By PRODUCT
(a book publisher might have departments for trade books, textbooks, and
technical books.)
- By FUNCTION
(production, marketing, finance, human resource management, and accounting
are common.)
- By CUSTOMER
GROUP (a pharmaceutical company might have separate departments that
focus on the consumer market, on hospitals, and on doctors.)
- By GEOGRAPHIC
LOCATIONS (U.S. operations and Canadian operations.)
- By PROCESS
(a firm that makes leather coats may have one department to cut the
leather, another to dye it, and a third to sew the coat.)
- Some firms use a
combination of departmental techniques.
- Companies must
learn to coordinate traditional departmental efforts with those of their
Internet operations.
- CENTRALIZATION
VERSUS DECENTRALIZATION OF AUTHORITY.
- The degree to which
an organization allows managers at lower levels to make decisions
determines the degree of decentralization.
- CENTRALIZED
AUTHORITY occurs when
decision-making authority is maintained at the top level of management
(example: McDonalds.)
-
DECENTRALIZED AUTHORITY
occurs when decision-making is delegated to lower-level managers (example:
J.C. Penney).
- Today’s rapidly
changing markets tend to favor more decentralization and more delegation
of authority.
- ORGANIZATION MODELS
- There are several
ways to structure an organization to accomplish their goals.
- LINE ORGANIZATIONS
- A LINE
ORGANIZATION has direct two-way lines of responsibility, authority,
and communication running from top to bottom, with all employees reporting
to only one boss (i.e. Army.)
- ADVANTAGES:
- CLEARLY
DEFINED RESPONSIBILITY AND AUTHORITY
- EASY TO
UNDERSTAND.
- ONLY ONE
SUPERVISOR FOR EACH PERSON.
- DISADVANTAGES:
- TOO INFLEXIBLE.
- FEW SPECIALIST
to advise employees along
the line.
- Too long LINES
OF COMMUNICATION.
- UNABLE TO
HANDLE COMPLEX DECISIONS.
- LINE-AND-STAFF
SYSTEMS
ORGANIZATIONS.
- LINE PERSONNEL
perform functions that contribute directly to the goals of the
organization.
- STAFF PERSONNEL
perform functions that advise and assist line personnel.
- ADVANTAGES:
- Expert
consultants are continuously available.
- Staff positions
strengthen the line personnel.
- MATRIX-STYLE
ORGANIZATIONS.
- Both line, and line
and staff organization structures suffer from a certain inflexibility.
- Both have
established lines of authority and communication and work well in
organizations with relatively unchanging environments and slow product
development.
- Today’s economic
scene is dominated by high-growth industries.
- In such
organizations, emphasis is on new product development, creativity, and
interdepartmental teamwork.
- The economic,
technological, and competitive environments are rapidly changing.
- MATRIX
ORGANIZATIONS bring
specialists from different parts of the organization together to work on
specific projects, but still remain part of a line-and-staff structure.
- Matrix
organization structures were developed in the aerospace industry.
- The structure is
now used in banking, management consulting firms, ad agencies, and
school systems.
- ADVANTAGES OF
MATRIX ORGANIZATIONS:
- FLEXIBILITY.
- ENCOURAGES
INTERORGANIZATIONAL COOPERATION AND TEAMWORK
- CAN RESULT IN
CREATIVITY.
- MORE EFFICIENT
USE OF ORGANIZATIONAL RESOURCES.
- DISADVANTAGES OF
MATRIX ORGANIZATIONS:
- COSTLY AND
COMPLEX.
- CONFUSION IN
EMPLOYEE LOYALTIES.
- REQUIRES GOOD
INTERPERSONAL SKILLS AND COOPERATIVE EMPLOYEES AND MANAGERS.
- It can be only a
temporary solution to a long-term problem.
- Matrix
organizations seem to violate some traditional managerial principles, but
the system functions relatively effectively.
- The potential
problem with matrix management is that the project teams are NOT
PERMANENT.
- There is little
chance for cross-functional learning.
- The newest trend
is to develop permanent teams and empower them to work closely with
others to quickly and efficiently bring out new projects.
- CROSS-FUNCTIONAL,
SELF-MANAGED TEAMS.
- CROSS-FUNCTIONAL
TEAMS are groups of employees
from different departments who work together on a semi-permanent basis (as
opposed to the temporary teams established in matrix-style organizations).
- Often the teams are
empowered to make decisions on their own without seeking the approval of
management.
- Self-managed teams
reduce the barriers between design, engineering, marketing, and other
functions.
- Technology is
increasing the trend toward cross-functional teams in that employees from
different departments can work simultaneously on the same project using
computers.
- GOING BEYOND
ORGANIZATIONAL BOUNDARIES.
- A
cross-functional team that includes customers, suppliers, and
distributors goes beyond organizational boundaries.
- NETWORKING AND
VIRTUAL CORPORATIONS.
- NETWORKING
is using communications technology and other means to link organizations
and allow them to work together on common objectives.
- Organizations are
so closely linked by the Internet that each can find out what the others
are doing in real time.
- REAL TIME
means the present moment or actual time in which something takes place.
- TRANSPARENCY
occurs when a company is so open to other companies working with it that
the once-solid barriers become "see through" and electronic information
is shared.
- Because of this
integration, two companies can work together as closely as two
departments once did.
- Because of this
integration, two companies can work together as closely as two departments
once did.
- A modern
organization chart would show people in different organizations and how
they are networked together.
- The organization
structures tend to be flexible and changing.
- EXTRANETS AND
INTRANETS.
- An EXTRANET
is an extension of the Internet that connects suppliers, customers, and
other organizations via secure websites.
- An INTRANET
is a set of communication links within one company that travel over the
Internet but are closed to public access.
- Intranets link
everyone in the firm electronically so they can communicate freely and
work together on projects.
- THE RESTRUCTURING
PROCESS AND TOTAL QUALITY.
- How you restructure
an organization depends on the status of the present system.
- TOTAL QUALITY
MANAGEMENT (TQM)
- TOTAL QUALITY
MANAGEMENT is the practice of
striving for customer satisfaction by ensuring quality from all
departments in an organization.
- CONTINUOUS
IMPROVEMENT means constantly
improving the way the organization does things so that customer needs can
be better satisfied.
- In bureaucratic
organizations with many layers of management TQM is not suitable.
- When an
organization needs dramatic changes, only reengineering will do.
- REENGINEERING
is the fundamental rethinking and radical redesign of organizational
processes to achieve dramatic improvements in critical measures of
performance.
- Example: IBM’s
credit organization.
- Reengineering may
also be necessary to adapt an organization to fit into a virtual network.
- In firms where
reengineering is not feasible, RESTRUCTURING may do.
- HOW RESTRUCTURING
AFFECTS ORGANIZATIONAL DESIGN.
- Many firms are
discovering that the key to long-term success in a competitive market is
to empower front-line people to respond quickly to customer wants and
needs.
- The most advanced
service organizations have turned the traditional organizational structure
upside down.
- These INVERTED
ORGANIZATIONS have contact people at the top and the chief executive
officer at the bottom.
- There are few
layers of management, and their job is to assist and support front-line
people.
- Companies based
on this structure support front-line personnel with internal and
external databanks, advances communication systems, and professional
assistance.
- Companies based
on this structure support front-line personnel with internal and
external databanks, advances communication systems, and professional
assistance.
- FRONT-LINE
PEOPLE HAVE TO BE BETTER EDUCATED, BETTER TRAINED, AND BETTER PAID
than in the past.
- In more progressive
organizations, everyone shares information and that gives everyone power.
- THE MOVEMENT
TOWARD OUTSOURCING.
- In the past, each
organization had a separate department for each function such as
accounting, marketing, and production.
- Today’s
organizations are benchmarking each function against the best in the
world.
- COMPETITIVE
BENCHMARKING is rating an
organization’s practices, processes, and products against the world’s
best.
- If the organization
can’t do as well as the best, the idea is to outsource the function to an
organization that is the best.
- OUTSOURCING
is assigning various functions, such as accounting and legal work, to
outside organizations.
- Some functions,
such as information management and marketing, may be too important to
outsource.
- CORE
COMPETENCIES are those
functions that the organization can do as well or better than anyone else
in the world.
- ESTABLISHING A
SERVICE-ORIENTED CULTURE.
Give examples to
show how organizational culture and the informal organization can hinder or
assist organizational change.
- Organizational change
is bound to cause some RESISTANCE, and should be accompanied by the
establishment of an ORGANIZATIONAL CULTURE THAT FACILITATES SUCH CHANGE.
- ORGANIZATIONAL
CULTURE is the widely shared
values within an organization that provide coherence and cooperation to
achieve common goals.
- The culture of an
organization is reflected in stories, traditions, and myths.
- Those companies
have LESS NEED FOR CLOSE SUPERVISION of employees.
- Good organizational
culture emphasizes SERVICE TO CUSTOMERS.
- Good
organizational culture emphasizes SERVICE TO CUSTOMERS.
- Those companies
have LESS NEED FOR CLOSE SUPERVISION of employees.
- Within that
atmosphere, SELF-MANAGED TEAMS CAN DEVELOP AND FLOURISH.
- The key to
productive culture is MUTUAL TRUST.
- The best
organizational cultures stress HIGH MORAL AND ETHICAL VALUES.
- The formal
organization structure is just one element of the total organizational
system.
- THE INFORMAL
ORGANIZATION.
- All organizations
have two systems.
- The FORMAL
ORGANIZATION appears on the organization chart.
- The INFORMAL
ORGANIZATION is the system of relationships among employees that
develop outside the formal organization.
- The FORMAL
ORGANIZATION is the structure that details lines of responsibility,
authority, and position.
- The INFORMAL
ORGANIZATION is the system of relationships that develop
spontaneously as employees meet and form power centers.
- No organization can
operate effectively without both types of organization.
- The FORMAL
ORGANIZATION can be SLOW and BUREAUCRATIC, while the
INFORMAL ORGANIZATION CAN ADAPT QUICKLY.
- The INFORMAL
ORGANIZATION is TOO UNSTRUCTURED AND EMOTIONAL for
decision-making, while the FORMAL ORGANIZATION PROVIDES GUIDELINES
AND LINES OF AUTHORITY.
- It is wise to learn
quickly who the important people are in the informal organization.
- The center of the
informal organization is the GRAPEVINE.
- Successful managers
learn to WORK WITH THE INFORMAL ORGANIZATION and use it to the
organization’s advantage.