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CHAPTER 7
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1
2 Chapter 7 Creating a Flexible Organization
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 3
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4 Chapter 7 Creating a Flexible Organization
III. Departmentalization
A. By Function
B. By Product
C. By Location
D. By Customer
E. Combinations of Bases
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 5
Teaching Tip: Enter “organization chart” in your favorite search engine and bring up some exam-
ples of organization charts. Some good ones include the one for the Justice Department (http://www
.justice.gov/agencies/index-org.html) and the one for the United Nations
(http://www.un.org/en/aboutun/structure/pdfs/UN_System_Chart_30June2015.pdf). Comparing
these and the charts you found, what do you think constitutes a good organization chart?
B. Major Considerations for Organizing a Business. The factors to consider when de-
ciding how to organize a firm include job design, departmentalization, delegation, span
of management, and chain of command.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
6 Chapter 7 Creating a Flexible Organization
Teaching Tip: As an example of job specialization, ask your students about the specialization in
their family as they were growing up. Chances are that each member of the family had some tasks
for which they were the family “expert.” For example, were they the computer guru in their house?
C. Alternatives to Job Specialization. Specialization can also have some negative conse-
quences, such as employee boredom and dissatisfaction. Managers can minimize these
issues.
1. Job rotation is the systematic shifting of employees from one job to another.
2. Job enlargement and job enrichment, along with other methods used to motivate
employees, are discussed in Chapter 10.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 7
Teaching Tip: Ask your students if any of them have ever worked for a restaurant or hotel. Ask them
what type of departmentalization they might have encountered. A hotel might have a specific group of
employees who only handle banquets and corporate meetings, which would be an example of customer-
based departmentalization. At a restaurant, things might be arranged by function. As part of the discus-
sion, ask students what improvements they might make.
Teaching Tip: Ask students if anyone has ever given them the responsibility for accomplishing a
task without giving them the authority to get it done.
Teaching Tip: Consider using “The Delegator” exercise here. It is a five-minute individual quiz that
can be used as the basis for discussion regarding when it is and when it isn’t appropriate to delegate.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8 Chapter 7 Creating a Flexible Organization
V. THE SPAN OF MANAGEMENT. The fourth major step of organizing a business is estab-
lishing span of management (or span of control), which is the number of workers who report
directly to one manager.
A. Wide and Narrow Spans of Management. A wide span of management exists when a
manager has a large number of subordinates. A narrow span exists when the manager
has only a few subordinates. Several factors determine the span that is best for a particu-
lar manager.
B. Organizational Height. Organizational height is the number of layers, or levels, of
management in a firm.
1. The span of management plays a direct role in determining an organization’s
height. (See Figure 7-4.)
a) If the span of management is wide, fewer levels are needed, and the organiza-
tion is flat.
b) If the span of management is narrow, more levels are needed, and the result-
ing organization is tall.
2. In a tall organization, administrative costs are higher because more managers are
needed. Communication may become distorted.
3. Managers in a flat organization may have to perform more administrative duties
because there are fewer managers.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 9
1. Managers within a line structure, called line managers, make decisions and give
orders to subordinates to achieve the goals of the organization.
2. A line structure allows line managers to make decisions quickly with direct ac-
countability because the decision maker only reports to one supervisor.
3. The downside of a line structure is that line managers are responsible for many ac-
tivities and therefore must have a wide range of knowledge about all of them. Con-
sequently, line structures are more popular in small organizations rather than in
medium- and large-sized organizations where activities are more numerous and
complex.
B. The Line-and-Staff Structure. A line-and-staff structure utilizes the chain of com-
mand from a line structure, but also provides line managers with specialists, called staff
managers.
1. Staff managers provide support, advice, and expertise to line managers. They are
not part of the chain of command but they do have authority over their assistants.
2. Both line and staff managers are needed for effective management, but the two po-
sitions differ in important ways. (See Figure 7-5.)
a) Line managers have line authority, which means that they can make decisions
and issue directives relating to the organization’s goals.
b) Staff managers have advisory authority, which means they can provide advice
to line managers. Staff managers also have functional authority, allowing
them to make decisions and issue directives about their areas of expertise.
3. Conflict between line managers and staff managers can occur if line managers per-
ceive that staff managers are a threat to their authority or if staff managers perceive
that their recommendations are not being adopted by line managers. There are sev-
eral ways to minimize this conflict.
a) Integrate line and staff managers into one team.
b) Ensure that the areas of responsibility of line and staff managers are clearly
defined.
c) Hold line and staff managers accountable for the results of their activities.
C. The Matrix Structure. The matrix structure combines vertical and horizontal lines of
authority.
1. The matrix structure occurs when product departmentalization is superimposed on
a functionally departmentalized organization. (See Figure 7-6.)
2. Authority flows both down and across and employees report to more than one su-
pervisor.
3. In a matrix structure, people from different departments are assigned to a group,
called a cross-functional team, to work on a new project.
a) Frequently, cross-functional teams are charged with developing new products.
b) The project manager is in charge of the team, but employees on the team also
report to their functional department supervisor.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
10 Chapter 7 Creating a Flexible Organization
Teaching Tip: Consider using the 30- to 60-minute “Virtual Network Structure” exercise here. This
exercise will allow students to explore the complexities of building a network.
VII. CORPORATE CULTURE. A corporate culture is generally defined as the inner rites, ritu-
als, heroes, and values of a firm.
A. Corporate culture is generally thought to have a very strong influence on a firm’s perfor-
mance over time.
B. Goffee and Jones identified four types of corporate cultures. (See Figure 7-7.)
1. Networked culture
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 11
2. Mercenary culture
3. Fragmented culture
4. Communal culture
Teaching Tip: Use the “What’s My Culture?” group exercise here. It takes approximately 15 to 20
minutes.
C. Some experts believe that cultural change is needed when the company’s environment
changes, such as when the industry becomes more competitive, the company’s perfor-
mance is mediocre, or the company is growing rapidly.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
12 Chapter 7 Creating a Flexible Organization
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 13
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
14 Chapter 7 Creating a Flexible Organization
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 15
of management also may require managers to spend considerably more time supervising and
working with subordinates.
Concept Check (p. 203)
1. Describe the four forms of organizational structure.
The four forms of organizational structure are as follows:
A line structure is a management system in which the chain of command goes directly
from person to person throughout the organization.
A line and staff structure not only utilizes the chain of command from a line structure
but also provides line managers with specialists, called staff managers.
The matrix structure combines vertical and horizontal lines of authority.
In a network structure (sometimes called a virtual organization), administration is the
primary function performed, and other functions such as engineering, production, mar-
keting, and finance are contracted out to other organizations.
2. Give an example of each form.
An example of a line structure would be a smaller organization such as a tea shop where the
chain of command goes from the owner or CEO to the different levels of employees.
An example of a line-and-staff structure might be a large sales organization with sales managers
that oversee regional sales managers. The sales manager would have the authority to make sales
decisions to advance company goals, while the regional sales managers oversee sales staff and
specialize in their specific regions.
An example of companies that use the matrix structure might be Ford Motor Company when it
assembled a special project team to design and manufacture its global cars. Often, engineering
and construction firms, like Bechtel Corporation, use a matrix structure for their projects.
A network organization does not manufacture the products it sells. This type of organization
has a few permanent employees consisting of top management and hourly clerical workers.
Leased facilities and equipment, as well as temporary workers, are increased or decreased as the
needs of the organization change. Thus, there is rather limited formal structure associated with a
network organization. Often, start-ups are formed as a network structure.
Concept Check (p. 204)
1. What is corporate culture?
Corporate culture is generally defined as the inner rites, rituals, heroes, and values of a firm. It
can have a powerful influence on how its employees think and act, as well as determine how the
public perceives the organization.
2. Explain the four types of corporate cultures.
There are four distinct types of corporate culture:
a. Networked culture is a relaxed and informal environment. There is a strong commitment
and a feeling of loyalty to the organization, characterized by a base of trust and friendship
among employees.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
16 Chapter 7 Creating a Flexible Organization
b. In the mercenary culture, employees are very intense, focused, and determined to win. In
addition to employees working to earn money, feelings of passion, energy, sense of purpose,
and excitement for one’s work play a large role in motivating an organization’s employees.
c. Fragmented culture suggests that employees do not necessarily become friends but have a
high degree of autonomy, flexibility, and equality. Employees in this type of culture con-
sider themselves as working “at” the organization, not “for” it.
d. In the communal culture, the positive traits of the networked culture and the mercenary cul-
ture are combined. Traits such as friendship, commitment, high focus on performance, and
high energy contribute to the organization resulting in an environment where success by
anyone is celebrated by all.
Concept Check (p. 205)
1. What is the difference between a committee and a task force?
An ad hoc committee is created for a specific short-term purpose, such as reviewing the firm’s
employee benefits plan. Once its work is finished, the ad hoc committee disbands. A standing
committee is a relatively permanent committee charged with performing a recurring task. A
firm might establish a budget review committee, for example, to review departmental budget
requests on an ongoing basis. Finally, a task force is a committee established to investigate a
major problem or pending decision.
2. What are the advantages and disadvantages of using committees?
Committees offer some advantages over individual action. Their several members are able to
bring information and knowledge to the task at hand. Furthermore, committees tend to make
more accurate decisions and to transmit their results through the organization more effectively.
However, committee deliberations take longer than individual actions. In addition, unnecessary
compromise may take place within the committee, or the opposite may occur, as one person
dominates (and thus negates) the committee process.
Concept Check (p. 205)
1. In what ways can informal groups affect a business?
Informal groups can be powerful forces in organizations. They can restrict output, or they can
help managers through tight spots. They can cause disagreement and conflict, or they can help
to boost morale and job satisfaction. They can show new people how to contribute to the organ-
ization, or they can help people to get away with substandard performance.
2. How is the grapevine used in a business organization?
The grapevine is the informal communications network within an organization. Information can
be transmitted through the grapevine in any direction—up, down, diagonally, or horizontally
across the organizational structure. Subordinates may pass information to their bosses, an exec-
utive may relay something to a maintenance worker, or there may be an exchange of infor-
mation between people who work in totally unrelated departments. Managers should respond
promptly and aggressively to inaccurate grapevine information to minimize the damage that
such misinformation might do. Moreover, the grapevine can come in handy when managers are
on the receiving end of important communications from the informal organization.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 17
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
18 Chapter 7 Creating a Flexible Organization
The matrix structure features vertical and horizontal lines of authority, departmentalization
superimposed on a functionally departmentalized organization, workers who report to more
than one supervisor at a time, and cross-functional teams that include project managers.
9. How does the corporate culture of a local Best Buy store compare to that of a local
McDonald’s?
Best Buy appears to be a mercenary culture in that its workers appear to be goal oriented and
competitive as they sell high-priced electronics products and accessories. McDonald’s is more
of a communal culture in that its workers are much more regimented as they work in teams for
the common goal of superior customer service.
10. Which kinds of firms probably would operate most effectively as centralized firms? As de-
centralized firms?
Production firms would probably operate most effectively as centralized firms because the de-
gree of specialized technical knowledge required is usually limited. Research firms, by contrast,
need to be decentralized because of the great degree and variety of specialized knowledge re-
quired to do the job in such firms.
11. How do decisions concerning span of management and the use of committees affect organ-
izational structure?
Decisions concerning span of management and the use of committees affect basic organiza-
tional structure by altering chains of command, delegation chains, individual authorities, ac-
countabilities, and so on.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7 Creating a Flexible Organization 19
2. Of the four types of corporate culture, which most closely describes the culture of Zap-
pos? What are the implications for the organization and for managers and employees?
Zappos does not exhibit a mercenary culture, because its employees are not obsessed with com-
pleting tasks and avoiding relationships. Nor does Zappos exhibit a fragmented culture, because
its employees are focused on building relationships rather than maintaining their independence
and being introverted. Although Zappos exhibits some elements of the networked culture—ex-
troverted and tolerant of ambiguities—it can be best described as a communal culture. In this
type of culture, employees are passionate about their work, identify strongly with the company
and its values, and enjoy working in teams, as at Zappos. The implications for management: Be
sure employees understand and embrace the common values; make working together fun; and
reinforce the focus on creating a “wow” experience for customers.
3. What effect are quarterly meetings and daily postings of performance statistics likely to
have on the grapevine inside Zappos?
By sharing information freely and frequently, and by encouraging questions and comments
from employees during meetings, Zappos is minimizing the possibility that misinformation will
spread via the grapevine. In fact, details that travel via the grapevine are likely to be more accu-
rate and timely when employees receive a lot of information directly from the company and
have the opportunity to discuss issues with management on a regular basis.
1
Tony Hsieh, “Your Culture Is Your Brand,” Zappos Blogs, January 3, 2009, http://blogs.zappos.com/blogs/ceo-and-
coo-blog/2009/01/03/your-culture-is-your-brand, accessed November 12, 2015.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
20 Chapter 7 Creating a Flexible Organization
not take care of your customers.”2 From the website: “We are not an average company, our
service is not average, and we don’t want our people to be average. We expect every em-
ployee to deliver WOW.”3 These messages are communicated throughout the organization,
and the messages are part of the culture. When a company embraces a philosophy as part of
its core, and the philosophy is not just a message but internal to every part of the organiza-
tion, it works!
2. Building Team Skills
The organization chart on the following page is a line-and-staff structure. There are three staff
positions: one payroll and billing position and two appointment coordinators. The other posi-
tions are line positions. In this organization, the span of control ranges from zero to seven peo-
ple. The executive vice-president works with builders to establish their programs and provides
the center managers with training, guidelines, and expectations. It is the responsibility of the
managers to run their centers in a courteous and profitable manner.
3. Researching Different Careers
The answers will vary. Emphasize that honesty is important in completing the assessment.
Nothing changes unless a plan is prepared to improve weaknesses. Possessing excellent skills,
knowing how to network, understanding one’s accomplishments, and having a positive attitude
are key factors in being promoted within a company, as well as in being hired to fill a better po-
sition with another company.
2
“Company Culture + Exceptional Service = Magic,” Zappos Insights, November 22, 2011, http://www.zapposin-
sights.com/blog/item/company-culture-exceptional-service-magic, accessed November 12, 2015.
3
“Life at Zappos,” Zappos, https://jobs.zappos.com/life-at-zappos, accessed November 12, 2015.
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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