CHAPTER 8

Structuring
Organizations for
Today’s
Challenges

McGraw-Hill/Irwin Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
 REORGANIZATION is for LO 8-1

EVERYONE

• Adjusting to changing markets

• Reorganizing:
Companies must go back to basic organizational
principles and firm up the foundation.

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STRUCTURING an ORGANIZATION
LO 8-1

• Create a division of labor

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

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 LO 8-2
THE CHANGING ORGANIZATION

• Change in organizations is due to evolving business

environments.
• Customer expectations have also changed

8-4
 PRODUCTION CHANGED LO 8-2

ORGANZIATION DESIGN

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

• Mass production of goods

led to complexities in
organizing businesses.

8-5
 LO 8-2
FAYOL’S PRINCIPLES

• Unity of command • Degree of centralization

• Hierarchy of authority • Clear communication

channels
• Division of labor
• Order
• Subordination of • Equity
individual interests to the
general interest • Esprit de corps

• Authority

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 These principles tend to be written down as:

• Policies
• Rules
• Regulation
 ORGANIZATIONS BASED on LO 8-2

FAYOL’S PRINCIPLES

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

• Rigid organizations often don’t

respond to customers quickly.

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 BUREAUCRACY
• Organization should look like the government
and the legal system.
• A “legal rational” approach
• Not traditional, family based leadership
 LO 8-2
WEBER’S PRINCIPLES

• Based on bureaucracy

• 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
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 LO 8-2
HIERARCHIES and COMMAND

• When following Fayol and Weber, managers

control workers.

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 LO 8-2
ORGANIZATIONAL CHARTS

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 LO 8-2
BUREAUCRATIC ORGANIZATIONS

• Bureaucratic organization is 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.

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CENTRALIZATION or LO 8-3

DECENTRALIZATION?

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CENTRALIZATION and LO 8-3

DECENTRALIZATION

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 SPAN of
CONTROL
ADVANTAGES and DISADVANTAGES of LO 8-3

the DIFFERENT SPANS of CONTROL

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 LO 8-3
ORGANIZATIONAL STRUCTURES

8-18
 LO 8-3
DEPARTMENTALIZATION

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 ADVANTAGES of LO 8-3

DEPARTMENTALIZATION

1) Employees develop skills and progress within a

department as they master skills.

2) The company can achieve economies of scale.

3) Employees can coordinate work within the function

and top management can easily direct activities.

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 DISADVANTAGES of LO 8-3

DEPARTMENTALIZATION

1) Departments may not communicate well.

2) Employees may identify with their department’s goals
rather than the organization’s.
3) The company’s response to external changes may be slow.
4) People may not be trained to take different managerial
responsibilities, instead they become specialists.

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 LO 8-3
WAYS to DEPARTMENTALIZE

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 LO 8-3
WAYS to DEPARTMENTALIZE

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