CHAPTER 9

Structuring
Organizations
for Today’s
Challenges

Prepared by Dr. C. McLarney, Dalhousie University

© 2022 McGraw Hill Limited

 Learning Objectives
1.Outline the basic principles of organization management.
2.Compare the organizational theories of Henri Fayol and Max
Weber.
3.Evaluate the choices managers make in structuring
organizations.
4.Contrast the various organizational models.
5.Identify the benefits of inter-firm co-operation and
coordination.
6.Explain how organizational culture can help businesses adapt
to change.

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 Management
• The principles of management are much the same, no
matter the size of the business.
• Management, as you learned in Chapter 8, begins with
planning.
• Organizing, or structuring, begins with determining
what work needs to be done and then dividing up
tasks
• Dividing tasks into smaller jobs is called job
specialization.
• The process of setting up individual departments to do
specialized tasks is called departmentalization.
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 The Changing Organization
• Never before in the history of business has so much
change been introduced so quickly—sometimes too
quickly
• Managing change, then, has become a critical
managerial function. It may sometimes include
redesigning the whole organizational structure.

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 The Development of Organizational
Design
• Until the twentieth century, most businesses were
rather small
• Business growth led to what was called economies
of scale. This term refers to the fact that companies
can reduce their production costs if they can
purchase raw materials in bulk

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 Business Growth
• Economies of scale focus on the supply side of a
business; economies of scope focus on the demand
side.
• This term refers to efficiencies that can be realized
through product bundling and family branding.

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 Fayol’s Principles of Organization

• Unity of command. Each

worker is to report to one,
and only one, boss.
• Hierarchy of authority. All
workers should know to
whom they should report.
Managers should have the
right to give orders and
expect others to follow

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Fayol’s Principles of Organization, Pt.
2
• Division of labour. Functions are to be divided into
areas of specialization such as production,
marketing, and finance
• Subordination of individual interests to the general
interest. Workers are to think of themselves as a
coordinated team.
• Authority. Managers have the right to give orders
and the power to enforce obedience

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 Fayol’s Principles of Organization, Pt. 3

• Degree of centralization. The amount of decision-

making power vested in top management should
vary by circumstances
• Clear communication channels. All workers should
be able to reach others in the firm quickly and
easily.

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 Fayol’s Principles of Organization, Pt. 4

• Order. Materials and people should be placed and

maintained in the proper location.
• Equity. A manager should treat employees and
peers with respect and justice.
• Esprit de corps. A spirit of pride and loyalty should
be created among people in the firm.

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 Weber’s Organizational Principles
Weber was writing about organization
theory in Germany around the same
time Fayol was writing his books in
France.
• Weber’s book The Theory of Social
and Economic Organizations
• He studied the hierarchy of many
significant historical organizations

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 Weber’s Organizational Principles, Pt. 2

• Job Descriptions
• Written Rules
• Procedures, Regulations, Policies
• Staffing/Promotions based on Qualifications

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 Decision to Make in Structuring
Organizations
Canadian professor Henry Mitzberg
• there is no single structure that will lead to success for
all organizations
• By their nature, many organizational structures today
are slow and unwieldy.
• Current trends are toward smaller, more flexible structures
that let companies react more quickly to today’s fast-
changing, technologically competitive business climate.

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 Centralization Versus
Decentralization of Authority
• Centralized authority occurs when decision-making
authority is maintained at the top level of
management at the company’s headquarters.
• Decentralized authority occurs when decision-making
authority is delegated to lower-level managers and
employees who are more familiar with local
conditions than headquarters’ management could be.

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 Centralization Versus
Decentralization of Authority
ADVANTAGES DISADVANTAGES
• Greater top-management • Less responsiveness to
control customers
Centralized • More efficiency • Less empowerment
• Simpler distribution system • Interorganizational conflict
• Stronger brand/corporate • Lower morale away from
image headquarters
• Better adaptation to • Less efficiency
customer wants • Complex distribution
• More empowerment of system
Decentralized workers • Less top-management
• Faster decision making control
• Higher morale • Weakened corporate
image

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 Span of Control
• Span of control refers to the optimum number of
subordinates a manager supervises or should
supervise.

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 Variables to Consider in Span of
Control
• Capabilities of Subordinates and Manager
• Complexity of Job
• Geographically Close
• Functional Similarity
• Need for Coordination
• Planning Demands
• Functional Complexity

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17
Span of Control, Pt. 2

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18
Span of Control, Pt. 3

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19
 Advantages and Disadvantages of
Departmentalization
• Departmentalization is dividing an organization into
separate units. The traditional way to departmentalize
organizations is by function.
• Functional structure is the grouping of workers into
departments based on similar skills, expertise, or
resource use.

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 Advantages and Disadvantages of
Departmentalization, Pt. 2
Advantages
• Employees can develop skills in depth and can
progress within a department as they master those
skills.
• The company can achieve economies of scale in that it
can centralize similar resources in one area.
• There is good coordination within the function, and
top management can easily direct and control various
departments’ activities.

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 Advantages and Disadvantages of
Departmentalization, Pt. 3
Disadvantages
• There may be a lack of communication among the
different departments.
• Individual employees may begin to identify with their
department and its goals rather than with the goals of
the organization as a whole.

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 Advantages and Disadvantages of
Departmentalization, Pt. 4
Disadvantages
• The company’s response to external changes may be
too narrow.
• People may not be trained to take broad-based senior
managerial responsibilities.
• People in the same department tend to think alike.

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Alternative Ways to Departmentalize

• By product
• By function
• By customer
group

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Alternative Ways to Departmentalize, Pt. 2
• By geographic location
• By process

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 Departmentalization by Function
ADVANTAGES DISADVANTAGES
• In depth skills development • Lack of communication
of employees • Employees identify with
• Economies of scale by department goals
centralizing all the resource instead of company
needs and locating various • Slow response to
experts in that area external demands
• Better coordination of • Narrow specialists
activity • May engage in
groupthink (they think
alike) which hinders
creativity

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 Organizational Models
Four models:
1. Line organizations,
2. Line-and-Staff organizations,
3. Matrix-style organizations, and
4. Self-managed teams

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 Line Organizations
ADVANTAGES DISADVANTAGES
• Clear Authority and • Inflexible
Responsibility • Few Specialists for
• Easy to Understand Advice
• One Supervisor per • Long Line of
Employee Communication
• Difficult to Handle
Complex Decisions

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Line-and-Staff Organizations

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 Organizational Models
Line-and-Staff organizations:
• To minimize the disadvantages of simple line
organizations, many organizations today have both
line and staff personnel.
• Line personnel
• Employees who are part of the chain of
command that is responsible for achieving
organizational goals.
• Staff personnel
• Employees who advise and assist line personnel
in meeting their goals.
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Matrix-Style Organizations

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 Organizational Models, Pt. 2
Matrix-Style Organizations
• Specialists from different parts of the organization are
brought together to work on specific projects but still
remain part of a line-and-staff
structure.

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 Organizational Models, Pt. 3
Cross-Functional Self-Managed Teams
• groups of employees from different departments who
work together on a long-term basis (as opposed to the
temporary teams established in matrix-style
organizations).

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 Managing Interactions
Networking
• Using communications technology and other means to
link organizations and allow them to work together on
common objectives.

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 Managing Interactions, Pt. 2
Virtual Organization
Real Time
• The present moment or the actual time in which something
takes place; data sent over the Internet to various
organizational partners as they are developed or collected are
said to be available in real time.

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 Managing Interactions, Pt. 3
Transparency
• A concept that describes a company being so open to
other companies working with it that the once-solid
barriers between them become see-through, and
electronic information is shared as if the companies
were one.

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 Virtual Corporation
• A temporary networked organization made up of
replaceable firms that join and leave as needed.
• The organization structures tend to be flexible and
changing.
• A virtual corporation has no permanent ties to the
firms that do its production, distribution, legal, and
other work.
• Such firms are very flexible and can adapt to changes
in the market quickly.

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Virtual Corporation, Pt. 2

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 Benchmarking and Core
Competencies
Benchmarking
• Comparing an organization’s practices, processes, and
products against the world’s best.
Core competencies
• Those functions that an organization can do as well
as or better than any other organization in the world.
Restructuring
• Redesigning an organization so that it can more
effectively and efficiently serve its customers.

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Restructuring for Empowerment

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Restructuring for Empowerment, Pt. 2

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 Focusing on the Customer
TQM – Total Quality Management
• Striving for maximum customer satisfaction
• by ensuring quality from all departments.
Continuous improvement (CI)
• means constantly improving the way the organization
does things so that customer needs can be satisfied.

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 Focusing on the Customer, Pt. 2
Re-engineering
• The fundamental rethinking and radical redesign of
organizational processes to achieve dramatic
improvements in critical measures of performance.

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 Examples of Informal Group
Norms
• Do your job, but do not produce more than the rest of
the group.
• Do not tell off-colour jokes or use profane language
among group members.
• Listen to the boss and use their expertise, but do not
trust them.
• Everyone is to be clean/organized at the workstation.

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 Examples of Informal Group Norms, Pt. 2
• Never side with managers in a dispute involving group
members.
• Respect/help your fellow group members on the job.
• Criticize the organization only among group members,
never among strangers.
• Drinking is done off-the-job, never at work!

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 Chapter Summary
1.Historical theories: Fayol and Weber
– Fayol introduced principles such as unity of command, hierarchy
of authority, division of labour, subordination of individual
interests to the general interest, authority, clear communication
channels, order, and equity.
– Weber added principles of bureaucracy such as job descriptions,
written rules and decision guidelines, consistent procedures, and
staffing and promotions based on qualifications.
2.Issues involved in structuring:
1) centralization versus decentralization,
2) span of control,
3) tall versus flat organization structures,
4) departmentalization

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 Chapter Summary, Pt. 2
3.Organizational models:
1) line organizations
2) line-and-staff organizations
4.Understand how organizations are connecting with their external
environment.
5.Restructuring, organizational culture, and informal organizations.

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