copyright © 2004 prentice hall. all rights reserved.6–1 what is organizing? organizing arranging...

Copyright © 2004 Prentice Hall. All rights reserved. 6–1

What Is Organizing?

• OrganizingArranging the activities of the enterprise in such a

way that they systematically contribute to the enterprise’s goals. This is a pretty loaded definition

– Remember where the organization falls within the overall management process.

• Planning• Organizing• Leading• Controlling

– Link between planning and organizing• Are the skills sets the same for both processes…


Depicting the Organization

• Organization Chart A chart that shows the structure of the organization including:

Strategy Structure– The title of each manager and position

• Legitimacy

– Connecting lines

• Formal networks / communication

– Accountability

• Stipulated, not perceived

– Authority

• Formal right to take action The organizational chart is one of the most popular ways to

“organize” strategic planning.– It is inherently important that the strategy and structure fit


Authority and the Chain of Command

• Chain of CommandThe path that a directive and/or answer or request

should take through each level of an organization.– Above and beyond authority– Chain of command ensures the proper communication

and delivery of confidential information

• AuthorityThe right to take action, to make decisions, and to

direct the work of others.– Legitimized through structure and position– Earned through action– Leadership theories


Line and Staff Authority

• Line ManagerA manager who is:

(1) in charge of essential activities such as sales

(2) authorized to issue orders to subordinates down the chain of command.

• Staff ManagerA manager without the authority to give orders down

the chain of command (except in his or her own department) Generally can only assist and advise line managers in

specialized areas such as human resources management.


Line and Staff Authority

• Functional AuthorityNarrowly limited power to issue orders down the

chain of command in a specific functional area. In respect to other types of authority:

– Functional authority refers to legitimacy and authority based on the perceived expert knowledge the one has on a specific area.

Other areas of authority may come from:– Divisional expertise– Product– Organziational


The Informal Organization

Informal OrganizationThe informal contacts, communications, and habitual

ways of doing things that employees develop. More common in today’s environment

3 areas Contacts Communications Habits / Behavior

Remember, both of these organization exist simultaneously. The question is which has more influence and power


Departmentalization:• Departmentalization

The process through which an organization’s activities are grouped together and assigned to managers. One of the fundamental approaches to organization

– In essence, grouping people with like professional backgrounds together

– In an effort to bring about increased production and efficiency

– This also allows for better control and managing of employees within the organization

But, since your in my class you know better– What are the down-sides in relation to present day


Organizing Departments by Function

• Functional DepartmentalizationA form of organization that groups a company’s

activities around essential functions such as manufacturing, sales, or finance. Again the major benefit is in the control

– Very homogeneous and predictable subgroup– Efficiencies

Drawbacks– Lack of creativity– Lack of adaptability– Higher need for formal coordination throughout the

orgainiztion


Self-Contained Divisions/Purposes• Product Departmentalization

Grouping departments around a firm’s products or services, or each family of products or services; also referred to as a “divisional” organization. This is important when the product is the organization

– You can pool functional resources into one division to ensure maximum effectiveness

– Insulated

• Customer DepartmentalizationSelf-contained departments are organized to serve

the needs of specific groups of customers.– Niche markets– Overseas markets


Divisional Organizationfor a Pharmaceuticals Company

FIGURE 6–2


FIGURE 6–3

Customer Departmentalization,Grayson Steel Company


Organizing Departments by Self-Contained Divisions/Purposes (cont’d)

• Marketing-channel DepartmentalizationDepartments focus on particular marketing channels,

such as drugstores or grocery stores.

• Geographic (Territorial) DepartmentalizationSeparate departments are established for each of the

territories in which the enterprise does business.

• In the end: Organization need to decide what structure best suits

external effectiveness and internal efficiency


FIGURE 6–4

Marketing Channel Departmentalization


FIGURE 6–5

Divisional OrganizationsFacilitate Coordination


Checklist 6.1Functional vs. Divisional Organizations

Functional Organization Advantages1. It is simple, obvious, and logical.2. It fosters efficiency.3. It can simplify executive hiring and training.4. It can facilitate the top manager’s control.

Functional Organization Disadvantages1. It increases the workload on the executive to

whom the functional department heads report.2. It may reduce the firm’s sensitivity to and

service to the customer.3. It produces fewer general managers.


Checklist 6.1 (cont’d)Functional vs. Divisional Organizations Divisional Organization Advantages

1. The product or service gets the single-minded attention of its own general manager and unit, and its customers may get better, more responsive service.

2. It’s easier to judge performance.3. It develops general managers.4. It reduces the burden for the company’s CEO.

Divisional Organization Disadvantages1. It creates duplication of effort.2. It may diminish top management’s control.3. It requires more managers with general

management abilities.4. It can breed compartmentalization.


Creating Matrix Organizations

• Matrix OrganizationAn organization structure in which employees are:

Permanently attached to one department But also simultaneously engaged in ongoing

assignments in which they report to:– Project– Customer– Product– Geographic unit heads.

Obviously, we need a hybrid (all-in-one) approach to address all the other types of structures available Hence the matrix organization

Copyright © 2004 Prentice Hall. All rights reserved. 6–18 FIGURE 6–6

Matrix Organization Departmentalization


Matrix Organizations

Advantages• Access to expertise.• Stability of permanent

department assignments for employees.

• Allows for focus on specific projects, products, or customers.

Disadvantages• Confusion of

command.• Power struggles and

conflicts.• Lost time in

coordinating.• Excess overhead for

managing matrix functions.


Departmentalization in Practice: A Hybrid

• Why mix the types of departmentalization?Hierarchical considerations

The relationship of top level departments to their subsidiary departments.

Efficiency Product, customer, and territorial departments tend to

result in duplicate sales, manufacturing, and other functional departments.

Common sense Departmentalizing is still more an art than a science.


Tall And Flat Organizations, And The Span Of Control

• Span of ControlThe number of subordinates reporting directly to a

supervisor. Wide spans: larger number of direct reports. Narrow spans: fewer number of direct reports.

• Tall vs. Flat OrganizationsTall organizations: more management layers and

more hierarchical controls.Flat organizations: fewer management layer and

decision making closer to the customer.


Network-based Organizations

• Organizational NetworkA system of interconnected or cooperating

individuals. How is this different from structure? What is the base premise? Do networks fall in line with structures?

• Informal NetworksCommunication pathways and relationships between

individuals in an organization that Do not necessarily conform to the formal chain of

command and communication networks of an organization.


Network-based Organizations (cont’d)

• Formal Organizational NetworkA recognized group of managers or other employees

Assembled by the CEO and the other senior executive team

Drawn from across the company’s functions, business units, geography, and levels.– Why would you need this given structure?

• Electronic Organizational NetworksNetworking through technology-supported devices

such as E-mail Video-conferencing Collaborative computing


FIGURE 6–10

How Networks Reshape Organizations

Where is the control and authority?

Where does the organization come from?


Network-based Organizations (cont’d)

• Team-Based OrganizationsTeam

A group of people committed to a common purpose, set of performance goals, and approach for which they hold themselves mutually accountable.

• Horizontal CorporationsA structure that is organized around customer-

oriented processes performed by: Multidisciplinary cross-functional teams rather than by

formal functional departments. In this manner, the networks and relationships become

the control mechanisms.


FIGURE 6–11

The Horizontal Corporation

Source: Source: John A. Byrne, “The Horizontal Corporation,” Business Week, 20 December 1993, p. 80.


Checklist 6.2Building Horizontal Organizations

Make responsibilities overlap. Design individual jobs as broadly as possible, and keep the number of job titles to a minimum.

Base rewards on unit performance to emphasize the importance of working together.

Change the physical layout to promote collective responsibility. Let people see each other’s work.

Redesign work procedures, provide computer terminals, use the e-mail network, and make sure managers are available.


FIGURE 6–12

How to Create a Horizontal Corporation

Source: Source: Reprinted from the December 20, 1993, issue of Business Week by special permission. Copyright © 1993 by the McGraw-Hill Companies, Inc.


Other Organization Types

• Virtual OrganizationA temporary network of independent companies that

use information technology to share skills, reduce costs, and provide access to one another’s markets.

Its success depends on each of the individual firms’ Responsibility Self-interest to accomplish the network’s purpose.

Virtual organizations are highly dependent on: Technologies Individual work ethics Platform controls

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