*

*Chapter Eight

Adapting Organizations

to Today’s Markets

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

*

*Profile

• Started as a field sales representative and moved up through Xerox.

• When she was chosen as the new CEO, Xerox was in bad shape.

• She cut the debt and built up cash reserves.

• Follows her motto - “Work hard. Measure the results. Tell the truth.”

ANNE MULCAHYXerox

8-2

*

*Everyone’s Organizing

• 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.

REORGANIZATION is for EVERYONE

LG1

8-3

*

*

• General Electric (GE) must restructure due to the financial crisis.

• Some international units, like the GE Money unit, may need to be sold to cut costs.

• Reorganized from six business segments to four.1. Technology Infrastructure

2. Energy Infrastructure

3. GE Capital

4. NBC Universal

GE LOOKS for MORE PROFITS(Reaching Beyond Our Borders)

8-4

*

*Building an Organization from the Bottom Up

• Create a division of labor

• Set up teams or departments

• Allocate resources

• Assign tasks

• Establish procedures

• Adjust to new realities

STRUCTURING an ORGANIZATIONLG1

8-5

*

*

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.

SAFETY vs. PROFIT(Making Ethical Decisions)

• What do you do?

• Save money with less safety precautions?

• What are the consequences?

8-6

*

*The Changing Organization

• 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.

THE CHANGING ORGANIZATION

LG2

8-7

*

*The Development of Organization Design

• Mass production of goods led to complexities in organizing businesses.

PRODUCTION CHANGED ORGANZIATION DESIGN

LG2

• Economies of Scale -- Companies can reduce their production costs by purchasing raw materials in bulk.

• The average cost of goods decrease as production levels rise.

8-8

*

*Fayol’s Principles of Organization

• Unity of command

• Hierarchy of authority

• Division of labor

• Subordination of individual interests to the general interest

• Authority

FAYOL’S PRINCIPLES

LG2

• Degree of centralization

• Clear communication channels

• Order

• Equity

• Esprit de corps

8-9

*

*Fayol’s Principles of Organization

• Organizations in which employees have no more than one boss; lines of authority are clear.

ORGANIZATIONS BASED on FAYOL’S PRINCIPLES

LG2

• Rigid organizations that often don’t respond to customers quickly.

8-10

*

*Max Weber and Organizational Theory

• 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.

WEBER’S PRINCIPLES

LG2

8-11

*

* Turning Principles into Organization Design

• 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.

HIERARCHIES and COMMAND

LG2

8-12

*

* Turning Principles into Organization Design

LG2

TYPICAL ORGANIZATION CHART

8-13

*

* Turning Principles into Organization Design

• 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.

BUREAUCRATIC ORGANIZATIONSLG2

8-14

*

*Choosing Centralized or Decentralized Authority

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

CENTRALIZATION or DECENTRALIZATION? LG3

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

8-15

*

*Choosing the Appropriate Span of Control

• 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.

SPAN of CONTROLLG3

8-16

*

* Choosing Tall versus Flat Organization Structures

• 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.

ORGANIZATIONAL STRUCTURESLG3

8-17

*

* Choosing Tall versus Flat Organization Structures

FLAT ORGANIZATIONAL STRUCTURE

LG3

8-18

*

*Weighing the Advantages and Disadvantages of Departmentalization

• Departmentalization -- Divides organizations into separate units.

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

DEPARTMENTALIZATION

LG3

8-19

*

*Weighing the Advantages and Disadvantages of Departmentalization

• Employees develop skills and progress within a department as they master skills.

• The company can achieve economies of scale.

• Employees can coordinate work within the function and top management can easily direct activities.

ADVANTAGES of DEPARTMENTALIZATION

LG3

8-20

*

*Weighing the Advantages and Disadvantages of Departmentalization

• Departments may not communicate well.

• Employees may identify with their department’s goals rather than the organization’s.

• The company’s response to external changes may be slow.

• People may not be trained to take different managerial responsibilities, instead they become specialists.

• Department members may engage in groupthink and may need outside input.

DISADVANTAGES of DEPARTMENTALIZATION

LG3

8-21

*

*Looking at Alternate Ways to Departmentalize

LG3

WAYS to DEPARTMENTALIZE

8-22

*

*Looking at Alternate Ways to Departmentalize

LG3

WAYS to DEPARTMENTALIZE

8-23

*

*Progress Assessment

• Why are organizations becoming flatter?

• What are some reasons for having a narrow span of control in an organization?

• What are the advantages and disadvantages of departmentalization?

• What are the various ways a firm can departmentalize?

PROGRESS ASSESSMENT

8-24

*

*Organization Models

1. Line Organizations

2. Line-and-Staff Organizations

3. Matrix-Style Organizations

4. Cross-Functional Self-Managed Teams

FOUR WAYS to STRUCTURE an ORGANIZATION

LG4

8-25

*

*Line Organizations

• Line Organization -- Has direct two-way lines of responsibility, authority and communication running from the top to the bottom. Everyone reports to one supervisor.

• There are no specialists, legal, accounting, human resources or information technology departments.

• Line managers issue orders, enforce discipline and adjust the organization to changes.

LINE ORGANIZATIONS

LG4

8-26

*

*Line-and-Staff Organizations

• Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees.

• Line personnel have authority to make policy decisions.

LINE PERSONNEL

LG4

8-27

*

*Line-and-Staff Organizations

• Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees.

STAFF PERSONNEL

LG4

8-28

*

*Line-and-Staff Organizations

LG4

SAMPLE LINE-and-STAFF ORGANIZATION

8-29

*

*Matrix-Style Organizations

• Matrix Organization -- Specialists from different parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure.

MATRIX ORGANIZATIONS

LG4

• Emphasis is on product development, creativity, special projects, communication and teamwork.

8-30

*

*Matrix-Style Organizations

LG4

SAMPLE MATRIX ORGANIZATION

8-31

*

*Matrix-Style Organizations

• Managers have flexibility in assigning people to projects.

• Interorganizational cooperation and teamwork is encouraged.

• Creative solutions to product development problems are produced.

• Efficient use of organizational resources.

ADVANTAGES of the MATRIX STYLE

LG4

8-32

*

*Matrix-Style Organizations

• It’s costly and complex.

• Employees may be confused about where their loyalty belongs.

• Good interpersonal skills and cooperative employees are a must.

• It’s a temporary solution to a possible long-term problem.

• Teams are not permanent.

DISADVANTAGES of the MATRIX STYLE LG4

8-33

*

*Cross-Functional Self-Managed Teams

• A way to fix the problem of matrix-style teams is to establish long-term teams.

• Empower teams to work closely with suppliers, customers and others to figure out how to create better products.

• Cross-Functional Self-Managed Teams -- Groups of employees from different departments who work together on a long-term basis.

CROSS-FUNCTIONAL SELF-MANAGED TEAMS

LG4

8-34

*

*Going Beyond Organizational Boundaries

• Cross-functional teams work best when the voice of the customer is heard.

• Teams that include customers, suppliers and distributors goes beyond organizational boundaries.

• Government coordinators may assist in sharing market information beyond national boundaries.

GOING BEYOND ORGANIZATIONAL BOUNDARIES

LG4

8-35

*

*

Source: CIO Magazine, www.cio.com,.

• Clear purpose

• Clear goals

• Correct skills

• Mutual accountability

• Shift roles when appropriate

BUILDING SUCCESSFUL TEAMSImportant Conditions for Small Teams

Going Beyond Organizational Boundaries

LG4

8-36

*

*Progress Assessment

• What’s the difference between line and staff personnel?

• What management principle does a matrix-style organization challenge?

• What’s the main difference between a matrix-style organization’s structure and the use of cross-functional teams?

PROGRESS ASSESSMENT

8-37

*

*Transparency and Virtual Organizations

• Most companies are no longer self-sufficient; they’re part of a global business network.

• Real Time -- The present moment or actual time in which something takes place.

REAL TIME BUSINESS

LG5

8-38

*

*Transparency and Virtual Organizations

• Transparency -- When a company is so open to other companies that electronic information is shared as if the companies were one.

• Virtual Corporation -- A temporary networked organization made up of replaceable firms that join and leave as needed.

TRANSPARENCY and VIRTUAL CORPORATIONS

LG5

8-39

*

*Transparency and Virtual Organizations

LG5

A VIRTUAL CORPORATION

8-40

*

*

Source: Healthcare Financial Management.

Benefits Concerns

• Provides enough staff to operate the facility

• Lower employee morale

• Cost savings • Liability

• Should patients be informed

• Confidentiality and security

BENEFITS and CONCERNS of HEALTHCARE OUTSOURCING

Transparency and Virtual Organizations

LG5

8-41

*

*

Source: USA Today.

WHICH JOBS will beOUTSOURCED NEXT?

Transparency and Virtual Organizations

LG5

8-42

*

*Benchmarking and Core Competencies

• Benchmarking -- Compares an organization’s practices, processes and products against the world’s best.

• Core Competencies -- The functions an organization can do as well as or better than any other organization in the world.

• If a company can’t match a competitor, they may try to outsource.

BENCHMARKING and CORE COMPETENCIES

LG5

8-43

*

*Adapting to Change

• Change isn’t easy. Employees like to do things the way they always have.

• Get rid of old, inefficient facilities and equipment.

• Use the Internet to get to know your customers and sell directly to them.

ADAPTING to MARKET CHANGES

LG5

8-44

*

*KEEP in TOUCH

Amazon and its Customer Database

Adapting to Change

Amazon.com uses information stored in databases to reach out to customers. The company emails customers letting them know about CDs, DVDs or books they might like based on past purchases.

• Have you ever received an email like this from Amazon or another company?

• What benefits would a database of personal information, like past purchases, provide Amazon?

• Do you think these databases are helpful for both companies and consumers or are they an invasion of privacy?

LG5

8-45

*

*Restructuring for Empowerment

• Restructuring -- Redesigning an organization so it can more effectively and efficiently serve its customers.

• Inverted Organization -- An organization that has contact people at the top and the CEO at the bottom of the organizational chart.

RESTRUCTURING

LG5

• The manager’s job is to assist and support frontline workers, not boss them.

8-46

*

*Restructuring for Empowerment

LG5

TRADITIONAL and INVERTED ORGANIZATIONS

8-47

*

*Creating a Change-Oriented Organizational Culture

• Organizational or Corporate Culture -- The widely shared values within an organization that foster unity and cooperation to achieve common goals

• Some of the best organizational cultures emphasize service.

• Culture is shown in stories, traditions and myths.

ORGANIZATIONAL CULTURE

LG6

8-48

*

*Managing the Informal Organization

• Formal Organization -- Details lines of responsibility, authority and position.

• The formal system is often slow and bureaucratic but it helps guide the lines of authority.

• No organization can be effective without formal and informal organization.

FORMAL ORGANIZATION

LG6

8-49

*

*Managing the Informal Organization

• Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships.

INFORMAL ORGANIZATION

LG6

• Informal organization helps foster camaraderie and teamwork among employees.

8-50

*

*Managing the Informal Organization

• The informal system is too unstructured and emotional on its own.

• Informal organization may also be powerful in resisting management directives.

LIMITATIONS of INFORMAL ORGANIZATIONS

LG6

8-51

*

*

Source: CIO Magazine, www.cio.com,.

• Do your job but don’t produce more than the rest of your group.

• Don’t tell off-color jokes or use profanity.

• Everyone is to be clean and organized at the workstation.

• Respect and help your fellow group members.

• Drinking is done off the job – NEVER at work.

GROUP NORMSExamples of Informal Group Norms

Managing the Informal Organization

LG6

8-52

*

*

• Informal networks are easier to maintain in small businesses.

• Communication among large corporate units isn’t managed as well, inhibiting innovation.

• Large corporations could form cross-departmental sports teams or sponsor cross-departmental parties to get ideas flowing in more informal settings.

KEEPING THAT SMALL-COMPANY FEELING

(Spotlight on Small Business)

8-53

*

*Progress Assessment

• What’s an inverted organization?

• Why do organizations outsource functions?

• What’s organizational culture?

PROGRESS ASSESSMENT

8-54