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chapter Organizing the Business

Business Essentials, 7th Edition

Ebert/Griffin

Instructor Lecture PowerPoints

PowerPoint Presentation prepared by
© 2009 Pearson Education, Inc. Carol Vollmer Pope Alverno College
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 What Is Organizational Structure?
• Organizational Structure
– The specification of the jobs to be done
within an organization and the ways in
which those jobs relate to one another
• Organizational Charts
– Clarify structure and show employees
where they fit into a firm’s operations
– Show the chain of command, or reporting
relationships, within a company

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FIGURE 6.1 The Organizational Chart

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 Determinants of Organizational Structure

Mission

Strategy

Size

Internal Environment

External Environment

Organizational structure is usually quite fluid!

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 The Building Blocks of Organizational Structure

• Specialization
– Division of work: job specialization
• Departmentalization
– Product, process, functional, customer, or geographic
• Establishment of a decision-making hierarchy
– Distributing authority:
• Delegation: assigning tasks
• Centralization: upper management retains authority
• Decentralization: lower-level managers make decisions

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 Planning Departments

• Once jobs have been specialized, they need to be

grouped into logical units.
– This is called departmentalization.
– Here are some areas of departmentalization:
• Product departmentalization
• Process departmentalization
• Functional departmentalization
• Customer departmentalization
• Geographic departmentalization
• Multi forms (combinations) of departmentalization

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FIGURE 6.2 Multiple Forms of
Departmentalization

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Establishing the Decision-Making Hierarchy

Centralized Organization
Top managers hold most
decision-making authority

Decentralized Organization
Lower-level managers hold
significant decision-making
authority

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 Tall and Flat Organizations
• Flat Organizational Structure
– Common in decentralized organizations
– Fewer layers of management
– Rapid communication
– Wide spans of control
• Tall Organizational Structure
– Common in centralized organizations
– Multiple layers of management
– Slower communication
– Narrower spans of control

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Figure 6.3 Organizational Structure and
Span of Control

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 The Delegation Process
• Delegation
– The process through which a manager allocates work to
subordinates
• Delegation Entails:
– Assignment of responsibility—the duty to perform an
assigned task
– Granting of authority—the power to make decisions
necessary to complete the task
– Creation of accountability—the obligation of
employees to successfully complete the task

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 Forms of Authority
• Line Authority
– The type of operational authority that flows up and
down the chain of command
• Staff Authority
– Authority based on special expertise and usually
involves counseling and advising line managers
• Committee and Team Authority
– Authority granted to committees or work teams
that play central roles in the firm’s daily operations

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Figure 6.4 Line and Staff Organization

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 Forms of Organizational Structure
• Functional Structure
– Form of business organization in which authority
is determined by the relationships between group
functions and activities
– Used by most small- to medium-sized firms
structured around basic business functions
(marketing, operations, finance)
– Advantages:
• Specialization and smoother internal coordination
– Disadvantages:
• Centralization, poor cross-functional coordination, and
lack of accountability

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Figure 6.5 Functional Structure

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 Forms of Organizational Structure (cont’d)
• Divisional Structure
– Based on departmentalization by product, with each
division managed as a separate enterprise
– Organizations using this approach are typically
structured around several divisions—departments
that resemble separate businesses in that they
produce and market their own products
– Advantages:
• Increased product-focus and internal coordination
– Disadvantages:
• Duplication of efforts and competition between
divisions

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Figure 6.6 Divisional Structure

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 Forms of Organizational Structure (cont’d)

• Matrix Structure
– Organized along two dimensions, instead of just
one, by combining, for example, functional and
divisional structures
– Advantages:
• Highly flexible, focused on a single problem, access to
resources and expertise
– Disadvantages:
• Loss of command and control, lack of accountability,
impermanent existence

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FIGURE 6.7 Matrix Organization at
Martha Stewart’s Omnimedia

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 Forms of Organizational Structure (cont’d)

• International Structures
– Developed in response to the need to manufacture,
purchase, and sell in global markets
– Department, division, or geographic
• Global Structure
– Acquiring resources (including capital), producing goods
and services, engaging in research and development, and
selling products in whatever local market is appropriate,
without any consideration of national boundaries

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FIGURE 6.8 International Division Structure

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 Organizational Design for the 21st Century
• Team Organization
– Relies almost exclusively on project-type teams, with little
or no underlying functional hierarchy
• Virtual Organization
– Has little or no formal structure, few permanent
employees, a very small staff, and a modest administrative
facility
• Learning Organization
– Integrates continuous improvement and employee
learning and development while transforming itself to
respond to changing demands and needs

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FIGURE 6.9 The Virtual Organization

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 Key Terms

accountability geographic departmentalization

authority grapevine
centralized organization informal organization
chain of command international organizational
committee and team authority structures
customer departmentalization intrapreneuring
decentralized organization job specialization
delegation line authority
departmentalization line department
division matrix structure
divisional structure organization chart
flat organizational structure organizational structure
functional departmentalization process departmentalization
functional structure product departmentalization

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 Key Terms (cont.)

profit center
responsibility
span of control
staff authority
staff members
tall organizational structure
work team

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