Chapter 8 Outline Building an Organization from the Bottom Up Division of labor Determining what work needs to be done and then dividing up the tasks among workers Job specialization Dividing tasks into smaller jobs The success of a firm often depends on management s ability to identify each worker s strengths and assign the right tasks to the right person Monitor the environment to see what competitors are doing and what customers are demanding The Development of Organization Design Mass Production efficiently producing large quantities of goods Economies of scale The situation in which companies can reduce their production costs if they can purchase raw materials in bulk the average costs of goods goes down as production levels increase Fayol s Principles of Organization o Unity of command Each worker is to report to one and only one boss o Hierarchy of authority All workers should know to whom they should report o Division of Labor Functions are to be divided into areas of specialization such as production marketing and finance o Subordination of individual interests to the general interest Workers are to think of themselves as a coordinated team o Authority Managers have the right to give orders and the power to enforce obedience o Degree of centralization The amount of decision making power vested in top management should vary by circumstances o Clear communication All workers should be able to reach others in the firm quickly and easily o Order Materials and people should be placed and maintained in the o Equity A manager should treat employees and peers with respect and o Esprit de corps A spirit of pride and loyalty should be created among proper location justice people in the firm In addition to Fayol s principles of organization Max Weber included o Job descriptions o Written rules decision guidelines and detailed records o Consistent procedures regulations and policies o Staffing and promotion based on qualifications Turning Principles into Organization Design 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 who are responsible to that person Chain of command The line of authority that moves from the top of a hierarchy to the lowest level Bureaucracy An organization with many layers of managers who set rules and regulations and oversee all decisions Centralization versus Decentralization of Authority Centralized Authority an organization structure in which decision making authority is maintained at the top level of management at the company s headquarters Decentralized Authority An organization structure in which decision making authority is delegated to lower level managers more familiar with local conditions than headquarters management could be Choosing the Appropriate Span of Control Span of control Refers to the optimum number of subordinates a manager supervises or should supervise Companies can expand their span of control if they train their employees better and are willing to trust them more Tall versus Flat Organization Structures Tall narrow Organization Structure An organizational structure in which the pyramidal organization chart would be quite tall because of the various levels of management o Advantages More control by top management more chances for advancement greater specialization and closer supervision o Disadvantages Less empowerment higher costs delayed decision making and less responsiveness to customers Flat organization structure An organization structure that has few layers of management and a broad span of control o Advantages Reduced costs more responsiveness to customers faster decision making more empowerment o Disadvantages Fewer chances for advancement overworked managers loss of control less management expertise Advantages and Disadvantages of Departmentalization Departmentalization The dividing of organizational functions into separate units Functional structure grouping of workers into departments based on skills expertise or resource use Departmentalization enables employees to specialize and work together efficiently and may also save costs Other Advantages o Employees can develop skills in depth and can progress within a department as they master those skills o The company can achieve economies of scale in that it can centralize all the resources it needs and locate various experts in that area o There s good coordination within the function and top management can easily direct and control various departments activities Disadvantages o May be lack of communication among the different departments o Individual employees may begin to identify with their department and its goals rather than with the goals of the organization as a whole o The company s response to external changes may be slow o People may not be trained to take different managerial responsibilities rather they tend to become narrow specialists o People in the same department tend to engage in groupthink and may need input from outside department to become more creative Various ways for a firm to departmentalize o By product Usually results in good customer satisfaction o By function separate units based on functions o By customer group Customer groups might benefit from have specialists satisfying their needs o By geographic location Customers often can vary by region o By process Such specialization enables employees to do a better job because they can focus on a few critical skills Hybrid firms A combination of departmentalization techniques i e a company could departmentalize by function geographic location and customer groups Organization Models Line organization An organization that has direct two way lines of responsibility authority and communication running from the top to the bottom of the organization with all people reporting to only one supervisor Line managers can issue orders enforce discipline and adjust the organization as conditions change In larger businesses a line organization may have the disadvantages of being to inflexible of having few specialists or experts to advise people along the line of having lines of communication that are too long and of being unable to handle the complex decisions involved in an organization as conditions change Line personnel Employees who are part of the chain of command that is responsive for achieving organizational goals Staff personnel Employees who advise and assist line personnel in meeting their goals Main
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