Pride/Hughes/Kapoor Business, 10th Edition

Audio Review Transcript
Chapter 7 Creating a Flexible Organization

1. Understand what an organization is and identify its characteristics

The way a company is organized—or sometimes reorganized—frequently reflects its priorities. Sometimes that means low costs; other times it is customer satisfaction—or something else entirely. Let’s start by explaining what an organization is. An organization is a group of two or more people working together to achieve a common set of goals. An organization can be very small or very large. Large, complex organizations often use a diagram, called an organization chart, to represent the positions and relationships within an organization. This can help people visualize the reporting relationships and hierarchy in a firm because each position is shown by a shape, most commonly a rectangle. The president is at the top, and each level of management is represented by a row of horizontal rectangles. Solid vertical lines connect levels of management to indicate the chain of command, which is the line of authority that extends from the highest to the lowest levels of an organization. Other positions, such as legal services and human resources, called staff or advisory positions, and are shown with dotted lines because they are not in the direct chain of command.
Whether a firm is large or small, it must make five decisions about organization. Those decisions involve job design, departmentalization, delegation, span of management, and chain of command. Let’s discuss each of these decisions individually, starting with job design. Job design involves dividing the work that is to be done by the organization into separate parts, and assigning those parts to positions within the organization. (LO 1 ends)

2. Explain why job specialization is important

The separation of all organizational activities into distinct tasks and the assignment of different tasks to different people is called job specialization. Why should a firm use job specialization? For several reasons. First, because the “job” of the organization is simply too large for one person. Second, because when a worker has to learn only one or two specific tasks, he or she can do it very efficiently. Third, the worker who is doing the same task over and over doesn’t have to lose time changing from one operation to another. Fourth, specialized jobs may use specialized equipment to make the task more efficient. And fifth, specialized jobs make training easier. Of course, the down side to specialization is boredom and dissatisfaction. One way to fight this boredom is by using a systematic shifting of employees from one job to another, a process called job rotation. In job rotation, workers may work at one task for a week, then move to another task for a week, and so on. (LO 2 ends)

3. Identify the various bases for departmentalization

After jobs are designed, they are grouped together into manageable working units, a process called departmentalization. This the second step in setting up the organization. Depending on the type of business, organizations may departmentalize on the basis of function, product, location, or type of customer. Many organizations use more than one basis. Departmentalization by function means grouping jobs together that relate to the same organizational activity. As a result, marketing people work together, production people work together, accounting people work together, and so on. Departmentalization by product means that activities related to a particular product or service are grouped together. So if an organization produces five major products, each product would have its own marketing, accounting, and production group. Departmentalization by location groups activities according to the defined geographic area in which they are performed. This means an organization can respond quickly to the unique demands of different locations. Departmentalization by customer groups activities according to the needs of various customer populations. This allows a firm to focus on the specific needs of specific customers. Most organizations use the combination of structures that best fits their needs for customer service and efficiency. (LO 3 ends)
4. Explain how decentralization follows from delegation

After jobs are designed and departmentalized, the third step, delegation, is determined. Through delegation, part of a manager’s work and power is assigned to other workers. This has to happen because no one can do everything. Delegation involves three steps. The first is assigning responsibility. Responsibility is the duty to do a job or perform a task. The second step is granting authority. Authority is the power, within the organization, to accomplish an assigned job or task. The third step is creating accountability. Accountability is the obligation of a worker to accomplish an assigned task. It is important to remember that accountability can be created but not delegated. The person who was originally given the task is ultimately responsible for seeing that the result is achieved. Some managers are reluctant to delegate. They may fear that either the person to whom a task is delegated will fail to come through or that the person will do such a great job that he or she will attract attention of higher management. And some managers are just so disorganized that they are unable to assign work effectively.
The amount of delegation that occurs in an organization is often a direct reflection of its centralized or decentralized nature. In a decentralized organization, management consciously attempts to spread authority widely in the lower levels of the organization. Conversely, in a centralized organization, authority is concentrated in the upper levels of management. The level of complexity and risk in the external environment as well as the decision-making abilities of various managers can have a major influence on the tendency toward centralization or decentralization of decision making. (LO 4 ends)

5. Understand how the span of management describes an organization

The fourth major step in organizing a business is establishing the span of management. The span of management, sometimes called span of control, is simply the number of workers who report directly to one manager. There is no ideal number, and even within the same organization the number may vary from department to department. In many cases, it depends on the tasks workers are performing. A wide span of management exists when a manager has a large number of subordinates. The span may be wide when the workers are performing the same or very similar tasks, such as in customer service. A wide span may also be most appropriate when both the manager and the workers are very competent, when the organization has a well-established set of operating procedures, and if relatively few new problems are expected to arise. A narrow span, where the manager has relatively fewer subordinates, may be more appropriate when workers are physically located far from each other, when the manager has a lot of work to do in addition to supervising workers, when much interaction is required between the manager and the workers, and if new problems arise frequently.
When an organization has wider spans of management, it tends to be flatter. When it uses narrow spans of management, it tends to be taller, because there are more levels. The number of layers, or levels, of management in a firm is called its organizational height. Organizational height can have a direct bearing on a firm’s communication and overall costs. (LO 5 ends)

6. Understand how the chain of command is established by using line and staff management

The last step in organizing a business is establishing the chain of command. We discussed this earlier when we talked about a firm’s organization chart. Recall that the chain of command is the line of authority that extends from the highest to the lowest levels of the organization. A line management position is part of the chain of command. It includes direct responsibility for achieving the goals of the organization. A staff management position, on the other hand, is a position created to provide support, advice, and expertise within the organization. Staff management positions are not part of the chain of command. Both positions are necessary for effective management, but line managers have line authority, which means they can make decisions and issue directives. Staff managers have advisory or functional authority, and act as consultants or express their opinions based on their expertise. Conflict between line and staff managers is fairly common in organizations, but integrating both line and staff managers in teams and clearly defining areas of responsibility can minimize this issue. (LO 6 ends)

7. Describe the four basis forms of organizational structure: bureaucratic, matrix, cluster, and network

You now know the five decisions that have to be made when setting up an organization: job design, departmentalization, delegation, span of management, and chain of command. Now let’s turn to the problem of putting all the pieces together—and determine what form or structure the organization will take. There are four basic forms: bureaucratic, matrix, cluster, and network.
A bureaucratic structure is a management system based on a formal framework of authority that is carefully outlined and precisely followed. It is characterized by a high level of job specialization, departmentalization by function, formal patterns of delegation, a high degree of centralization, narrow spans of management, and clearly defined line and staff positions. It is not a good choice for organizations that require flexibility. The matrix structure combines vertical and horizontal lines of authority, usually by superimposing product departmentalization on a functionally departmentalized organization. In this type of structure, authority flows both down and across. Organizations that have set up a team environment function well in a matrix structure. In fact, matrixes often use cross-functional teams consisting of a group of employees from different departments who work together on a specific project. Cross-functional teams are led by a project manager. Matrix structures offer flexibility and improved productivity and morale, but employees can experience confusion in reporting relationships and the cost to maintain them may be higher. The cluster structure-- also called a team or collaborative structure--is an organization that consists primarily of teams with no or very few underlying departments. Team members work together on a project until it is complete. The team may stay together to work on another project or individual members may be reassigned to other teams, depending on the needs of the organization. The cluster structure is very flexible and tends to be willing to take risks, but some employees may fear for job security and experience increased stress. The last type of structure is the network structure. In a network structure, sometimes called a virtual organization, administration is the primary function and most other functions are contracted out to other firms. Flexibility also characterizes this structure, but quality control, high worker turnover, and vulnerability due to reliance on outside contractors are also issues to be addressed. (LO 7 ends)

8. Summarize the use of corporate culture, intrapreneurship, committees, coordination techniques, informal groups, and the gapevine

In addition to the nuts and bolts issues of infrastructure, organizations need to consider several other factors. One of those is corporate culture. Corporate culture is generally defined as the inner rites, rituals, heroes, and values of a firm. A firm’s culture influences both its employees as well as the perception of those outside the organization. The four distinct types of corporate cultures identified by researchers are networked, mercenary, fragmented, and communal. Trying to change a corporate culture—even when it desperately needs to be changed—can be a long-term, and not necessarily successful, process. Another factor that influences an organization is its attitude toward creativity and intrapreneurship. An intrapreneur is an employee who pushes an innovative idea, product, or process through the organization. An intrapreneur makes use of the skills and attributes of an organization to produce an innovation.
Organizations also have to set up committees to perform certain tasks. These too can affect a firm’s structure. An ad hoc committee is created for a specific short-term purpose, such as reviewing a firm’s benefits plan. When its job is done, the committee is disbanded. A standing committee, on the other hand, is a relatively permanent committee charged with performing some recurring task, such as budget review. The third and final type of committee is a task force, which is established to investigate a major problem or pending decision, such as a merger. In general, committees allow more information and knowledge to be brought to the table, but decisions generally take much longer.
To coordinate organizational resources and minimize duplication, an organization may make use of a managerial hierarchy, which is an arrangement that provides increasing authority at higher levels of management. This way, one manager can coordinate all activities related to particular resources and have the authority to make decisions in that domain. In complex situations, a liaison, or go-between, may be used to coordinate activities between two groups.
Within an organization exists a structure that has nothing to with the organization chart. This is called the informal organization and it includes the pattern of behavior and interaction that stems from personal rather than official relationships. Within the informal organization are informal groups and a phenomenon called the grapevine. Informal groups are created by the members themselves to accomplish goals that may or may not be relevant to the organization. Informal groups are often, but not always, social in nature and can be powerful forces in an organization. The grapevine is the informal communications network within an organization. Information passed through the grapevine is fast, can go in any direction, and can be very accurate or totally distorted. There is no way to eliminate it. (LO 8 ends)