*

Chapter Eight

*
Adapting
Organizations
to Todays
Markets

McGraw-Hill/Irwin

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

ANNE MULCAHY
Xerox

*
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.

8-2

REORGANIZATION is for
EVERYONE

Everyones
Organizing

LG1

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.

8-3

GE LOOKS for MORE PROFITS

(Reaching Beyond Our Borders)

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.
2.
3.
4.

Technology Infrastructure
Energy Infrastructure
GE Capital
NBC Universal
8-4

STRUCTURING an ORGANIZATION

Building an
Organization from
the Bottom Up

LG1

Create a division of labor

Set up teams or departments
Allocate resources
Assign tasks
Establish procedures
Adjust to new realities

8-5

SAFETY vs. PROFIT

(Making Ethical Decisions)

You own a lawn-mowing business and are aware of

the hazards in the job. But, youve seen other
companies save money by eliminating safety
equipment. Youd also like to make more money.
What do you do?
Save money with less
safety precautions?
What are the
consequences?
8-6

THE CHANGING ORGANIZATION

The Changing
Organization

LG2

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.
8-7

PRODUCTION CHANGED
ORGANZIATION DESIGN

The Development
of Organization
Design

LG2

Mass production of goods led to complexities in

organizing businesses.
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

FAYOLS PRINCIPLES

Fayols Principles
of Organization

LG2

Unity of command
Hierarchy of authority
Division of labor
Subordination of individual
interests to the general
interest
Authority

Degree of
centralization
Clear communication
channels
Order
Equity
Esprit de corps

8-9

ORGANIZATIONS BASED on
FAYOLS PRINCIPLES

Fayols Principles
of Organization

LG2

Organizations in which
employees have no
more than one boss;
lines of authority are
clear.
Rigid organizations that
often dont respond to
customers quickly.
8-10

WEBERS PRINCIPLES
Employees just need to do what
theyre told.

Max Weber and

Organizational
Theory

LG2

In addition to Fayols principles,

Weber emphasized:

- Job descriptions.
- Written rules, decision
guidelines and detailed records.
- Consistent procedures,
regulations and policies.
- Staffing and promotion based
on qualifications.
8-11

HIERARCHIES and COMMAND

Turning
Principles into
Organization
Design

LG2

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.

8-12

TYPICAL ORGANIZATION CHART

Turning
Principles into
Organization
Design

LG2

8-13

*
BUREAUCRATIC ORGANIZATIONS

Turning
Principles into
Organization
Design

LG2

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.

8-14

CENTRALIZATION or
DECENTRALIZATION?

Choosing
Centralized or
Decentralized
Authority

LG3

Centralized Authority -- When decision-making is

concentrated at the top level of management.

Decentralized Authority --

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

8-15

SPAN of CONTROL

*Choosing the

Appropriate
Span of Control
LG3

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.
8-16

*
ORGANIZATIONAL STRUCTURES

Choosing Tall
versus Flat
Organization
Structures

LG3

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.

8-17

FLAT ORGANIZATIONAL
STRUCTURE

Choosing Tall
versus Flat
Organization
Structures

LG3

8-18

DEPARTMENTALIZATION

Weighing the
Advantages and
Disadvantages of
Departmentalization

LG3

Departmentalization -- Divides organizations into

separate units.

Workers are grouped by skills and expertise to

specialize their skills.

8-19

ADVANTAGES of
DEPARTMENTALIZATION

Weighing the
Advantages and
Disadvantages of
Departmentalization

LG3

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.

8-20

DISADVANTAGES of
DEPARTMENTALIZATION

Weighing the
Advantages and
Disadvantages of
Departmentalization

LG3

Departments may not communicate well.

Employees may identify with their departments goals
rather than the organizations.
The companys 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.

8-21

WAYS to DEPARTMENTALIZE

Looking at
Alternate Ways to
Departmentalize

LG3

8-22

WAYS to DEPARTMENTALIZE

Looking at
Alternate Ways to
Departmentalize

LG3

8-23

PROGRESS ASSESSMENT

*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?

8-24

FOUR WAYS to STRUCTURE an

ORGANIZATION

*Organization
Models

LG4

1. Line Organizations
2. Line-and-Staff Organizations
3. Matrix-Style Organizations
4. Cross-Functional Self-Managed Teams

8-25

LINE ORGANIZATIONS

*Line

Organizations
LG4

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.
8-26

LINE PERSONNEL

*Line-and-Staff
Organizations
LG4

Line Personnel -- Workers responsible for directly

achieving organizational goals, and include

production, distribution and marketing employees.

Line personnel have authority to make policy

decisions.

8-27

STAFF PERSONNEL

*Line-and-Staff
Organizations
LG4

Staff Personnel -- Employees who advise and assist

line personnel in meeting their goals, and include

marketing research, legal advising, IT and human
resource employees.

8-28

SAMPLE LINE-and-STAFF
ORGANIZATION

*Line-and-Staff
Organizations
LG4

8-29

MATRIX ORGANIZATIONS

*Matrix-Style

Organizations
LG4

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.

Emphasis is on
product development,
creativity, special
projects,
communication and
teamwork.
8-30

SAMPLE MATRIX
ORGANIZATION

*Matrix-Style

Organizations
LG4

8-31

ADVANTAGES of the
MATRIX STYLE

*Matrix-Style

Organizations
LG4

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.
8-32

DISADVANTAGES of the
MATRIX STYLE

*Matrix-Style

Organizations
LG4

Its costly and complex.

Employees may be confused about where their
loyalty belongs.
Good interpersonal skills and cooperative
employees are a must.
Its a temporary solution to a possible long-term
problem.
Teams are not permanent.
8-33

CROSS-FUNCTIONAL
SELF-MANAGED TEAMS

Cross-Functional
Self-Managed
Teams

LG4

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.
8-34

GOING BEYOND
ORGANIZATIONAL BOUNDARIES

*Going Beyond

Organizational
Boundaries

LG4

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.

8-35

BUILDING SUCCESSFUL TEAMS

Important Conditions for Small Teams

*Going Beyond

Organizational
Boundaries
LG4

Clear purpose
Clear goals
Correct skills
Mutual accountability
Shift roles when
appropriate

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

8-36

PROGRESS ASSESSMENT

*Progress

Assessment

*
Whats the difference between line and staff
personnel?
What management principle does a matrix-style
organization challenge?
Whats the main difference between a matrix-style
organizations structure and the use of crossfunctional teams?

8-37

REAL TIME BUSINESS

*Transparency

and Virtual
Organizations
LG5

Most companies are no

longer self-sufficient;
theyre part of a global
business network.
Real Time -- The present
moment or actual time in
which something takes
place.

8-38

TRANSPARENCY and VIRTUAL

CORPORATIONS

*Transparency

and Virtual
Organizations
LG5

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.

8-39

A VIRTUAL CORPORATION

*Transparency

and Virtual
Organizations
LG5

8-40

BENEFITS and CONCERNS of

HEALTHCARE OUTSOURCING
Benefits
Provides enough staff
to operate the facility
Cost savings

*Transparency

and Virtual
Organizations
LG5

Concerns
Lower employee morale
Liability
Should patients be
informed
Confidentiality and
security

Source: Healthcare Financial Management.

8-41

WHICH JOBS will be

OUTSOURCED NEXT?

*Transparency

and Virtual
Organizations
LG5

Source: USA Today.

8-42

BENCHMARKING and
CORE COMPETENCIES

*Benchmarking
and Core
Competencies
LG5

Benchmarking -- Compares an organizations

practices, processes and products against the worlds

best.

Core Competencies -- The functions an

organization can do as well as or better than any

other organization in the world.

If a company cant match a competitor, they may

try to outsource.
8-43

ADAPTING to
MARKET CHANGES

Adapting to
Change
LG5

Change isnt 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.
8-44

KEEP in TOUCH

Amazon and its Customer Database

*Adapting to
Change

LG5

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?
8-45

RESTRUCTURING

*Restructuring for
Empowerment
LG5

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.

The managers job is to

assist and support
frontline workers, not
boss them.
8-46

TRADITIONAL and INVERTED

ORGANIZATIONS

*Restructuring for
Empowerment
LG5

8-47

ORGANIZATIONAL CULTURE

Creating a
Change-Oriented
Organizational
Culture

LG6

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.

8-48

FORMAL ORGANIZATION

*Managing the
Informal
Organization
LG6

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.
8-49

INFORMAL ORGANIZATION

*Managing the
Informal
Organization
LG6

Informal Organization -- The system of

relationships that develop spontaneously as

employees meet and form relationships.

Informal organization
helps foster
camaraderie and
teamwork among
employees.
8-50

LIMITATIONS of INFORMAL
ORGANIZATIONS

*Managing the
Informal
Organization
LG6

The informal system is

too unstructured and
emotional on its own.
Informal organization
may also be powerful
in resisting
management
directives.
8-51

GROUP NORMS

Examples of Informal Group Norms

*Managing the
Informal
Organization
LG6

Do your job but dont produce more than the rest

of your group.
Dont 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.
Source: CIO Magazine, www.cio.com,.

8-52

KEEPING THAT
SMALL-COMPANY FEELING

*
*

(Spotlight on Small Business)

Informal networks are easier to maintain in small

businesses.
Communication among large corporate units isnt
managed as well, inhibiting innovation.
Large corporations could form crossdepartmental sports teams or sponsor crossdepartmental parties to get ideas flowing in more
informal settings.
8-53

PROGRESS ASSESSMENT

*Progress

Assessment

*
Whats an inverted organization?
Why do organizations outsource functions?
Whats organizational culture?

8-54