Chapter 8 Adapting Organizations to Today s Markets 1 Building an Organization from the Bottom Up a Organize Determine what work needs to be done b Division of Labor Identify each worker s strengths and assign different tasks to different people c Job Specialization Dividing tasks into smaller jobs results from division of labor d Departmentalization Setting up individual departments to do specialized tasks 2 Development of Organizational Design a Economies of Scale Companies can reduce their production costs by purchasing raw materials in bulk Leads to business growth i Average cost of goods decreases as production levels rise b Fayol s Principles of Organization i Unity of Command Each worker should report to only one boss ii Hierarchy of Authority All workers should know whom they report to Managers have the right to give orders and expect people to follow iii Division of Labor Functions are to be divided into areas of specialization iv Subordination of Individual Interests to The General Interest Workers are a team goals of team are more important than goals of individual v Authority Managers have the right to give orders and the power to enforce obedience Whenever authority is exercised responsibility arises vi Degree of Centralization Amount of decision making power vested in top management should vary by circumstances vii Clear Communication Channels All workers should be able to reach others easily viii Order Materials and people should be placed and maintained in proper location ix Equity Manager should treat employees and peers with respect and justice x Esprit de Corps A spirit of pride loyalty should be created among people in the firm c Max Weber s Organizational Theory Promoted pyramid structure and trusted that employees would simply do as they were told the less decision making the better i Emphasis on job descriptions written rules guidelines and policies consistent procedures regulations and policies and staffing promotions based on qualifications ii In favor of a bureaucracy and reliance on rules 3 Turning Principles into Organizational Design a Hierarchy A system in which one person is at the top of the organization and there is a ranked or sequential ordering from the top down of managers and others who are responsible to that person b Chain of Command Line of authority that moves from the top of the hierarchy to the lowest level i Usually goes CEO Managers First line supervisors c Bureaucracy An organization with many layers of managers who set rules and regulations and oversee all decisions 4 Decisions to Make in Structuring Organizations a Centralized Authority Decision making is concentrated at the top level of management b Decentralized Authority Decision making is delegated to lower level managers and employees who are more familiar with local conditions than headquarters management could be c Span of Control Describes the optimal number of subordinates a manager supervises or should supervise Span narrows at higher levels of the organization more complex systems d Tall Organization Structures Various levels of management e Flat Organization Structures Fewer levels of management and a broad span of control f Departmentalization Divides organization into separate units by function i Saves cost improves efficiency helps employees develop skills in depth and progress achieves economies of scale management can easily control department activities ii Hindered communication confusion of goals department goals vs organization s goals slow response to external changes people become narrow specialists engagement of groupthink iii Ways to departmentalize By product by function by customer group by geographic location 1 Hybrid combination of departmentalization tactics by process 5 Organizational Models a Line Organization Direct two way lines of responsibility authority and communication running from the top to the bottom of the organization with everyone reporting to only one supervisor i Example a pizza shop Managers can issue orders enforce discipline and adjust the organization as conditions change b Line Personnel Responsible for directly achieving organizational goals and include production workers distribution people and marketing personnel Has formal authority to make decisions c Staff Personnel Advise and assist line personnel in meeting their goals and include those in marketing research legal advising information technology and human resource management d Matrix Operation Specialists from different parts of the organization work together temporarily on specific projects but still remain part of the line and staff structure i Gives flexibility encourages cooperation teamwork produces creative solutions to development problems makes efficient use of resources ii Costly confuses employees about loyalty requires good interpersonal skills only a temporary solution to long term problems e Cross Functional Self Managed Teams Groups of employees from different departments who work together on a long term basis empowered to make decisions without management approval a Networking Uses communication technology and other means to link organizations and allow them to work together on common objectives i Networked organizations are so closely linked by the Internet that each can find out what the ii Leads to transparency Companies are so open to other companies that electronic information others are doing in real time is shared as if the companies are one b Virtual Corporation A temporary networked organization made up of replaceable firms that join and leave as needed c Benchmarking Compares an organization s practices processes and products against the world s best d Core Competencies Functions that the organization can do as well as or better than any other 6 Managing Interactions Among Firms organization in the world 7 Adapting to Change a Digital Natives Young people who grew up with the Internet b Restructuring Redesigning an organization so it can more effectively and efficiently serve its c Inverted Organization Contact people at the top and CEO s at the bottom Managers job is only to d Organizational Corporate Culture Widely shared values within an organization that foster unity customers assist and support front line people and cooperation to achieve common goals i McDonald s has the same look feel etc e Formal Organization Details lines of responsibility authority and position f Informal Organization Develops spontaneously as employees meet and form
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