Essentials of Management

Chapter 8Organization

Structure, Culture, and Change

Introductory ConceptsChapter 8 describes a variety of approaches

to subdividing work at the organizational and unit levels.

Structure is the hard side of organizations.Culture and change are the soft side of

organizations.Topics of structure, culture, and change are

vital to understanding organizations.

Principles of Organization in a Bureaucracy1. Hierarchy of authority (organizational units

controlled by a higher one)2. Unity of command (subordinates receive

assigned duties from one superior, and only accountable to that superior)

3. Task specialization (each organizational unit and each employee concentrates on one function)

Principles of Organization in a Bureaucracy, continued4. Responsibilities and job descriptions (each

employee has precise job description; policy and procedure manuals kept current and accessible)

5. Line and staff functions (line deal with primary outputs of firm, staff deals with support activities, and advise line units)

Advantages of a BureaucracyAllows for high level of accomplishment.Workers know who is responsible for what,

and whether they have the authority to make a given decision.

Facilitates vertical integration, allowing for control of product development, manufacturing, and distribution.

Prevents problem of workers not having enough direction.

Disadvantages of a BureaucracyCan be rigid in handling people and problems.Rules and regulations can lead to inefficiency,

such as getting approvals. High frustration often caused by red tape

(tight procedures that must be followed).Slow decision making because layers of

approval are necessary.

Functional DepartmentalizationDepartments are defined by functions each

one performs (e.g., accounting).Well suited for large-batch processing and for

specialization.Can have problems due to its size and

complexity.People within unit may not communicate well

with workers in other units (functional silo problem).

Geographic DepartmentalizationDepartments are arranged according to

geographic area or territory served.A natural unit in global business, such as

Honda of America.Allows for decision making at local level.Can lead to high costs because of duplication

of effort, and management may not be able to control local units well.

Product-Service DepartmentalizationDepartments arranged according to products

or services they provide.Makes most sense when product or service

has own unique demands.In well-run firm, units cooperate for mutual

benefit.Some problems with duplication of effort, and

control of separate units.

Modifications of the Bureaucratic Organization Project and Matrix OrganizationFlat Structures, Downsizing, OutsourcingHorizontal Structure (Organization by Team

and Process)Informal Structures and Communication

NetworksPower Sharing (Chairman and CEO)Selection of an Organization Structure

Project and Matrix OrganizationProjects good for performing special tasks

involving multiple specialties.Matrix organization is project structure

superimposed on functional structure.Capitalizes on advantages of both.Big projects function as mini-companies.Project managers borrow resources from

functional departments.

Flat StructuresOrganization with many layers is sometimes

converted to flat structure.Less bureaucratic because fewer managers

review work of others.Wider span of control because managers now

have fewer direct reports.IT a force for flatter structures.Flat structures can eliminate too many

managers needed for decision making.

Downsizing Can lead to simplified, less bureaucratic

structure, better profits and stock prices.Can backfire with lowered morale and return

on assets.Effective downsizing: (a) make it part of

business strategy, (b) eliminate low-value work, (c) link to future work needs, (d) lay off sensibly, (e) help laid off workers, and (f) involve employees in resizing process.

Outsourcing Part of globalization, but also having work

performed by other organizations.Company can operate with fewer employees

and physical assets, focus on activities it performs best.

Both basic and more advanced business functions can be outsourced.

Homeshoring moves customer service activities into homes of telecommuters.

Horizontal Structure (Organization by Team and Process)Group of people is concerned with a process

such as order fulfillment. Instead of task focus, all workers focus on

purpose of the activity.Horizontal structure uses teams responsible

for accomplishing a process.Reengineering switches emphasis from task

to process. Caution—expertise is still important.

Informal Structures and Communication NetworksInformal structure supplements formal

structure by adding flexibility and speed.Also referred to as informal networks because

of focus on using personal contacts to obtain information.

Social network analysis maps and measures links throughout organization.

Nodes are people, links are relationships.

Power Sharing at Highest Level of ManagementConcerns about complexity of top job has led

to (a) splitting roles of chairman and CEO, and (b) use of co-CEOs.

One person as chairman and CEO could lead to unchecked power.

When CEO focuses on operations, chairperson can focus on strategy.

Co-CEO arrangement better for family business than large, public company.

Key Factors that Influence Selection of Organization Structure1. Strategy and goals—structure follows

strategy.2. Technology—high technology firms rely

more on flexible structures.3. Size—bigness leads to centralized controls

and some formalization.4. Financial condition—flat costs less.5. Environmental stability—flexible structure

for unstable environment.

Delegation of Responsibility and Empowerment To delegate and empower effectively,

manager should:a. Assign duties to right people.b. Delegate whole task, avoid details.c. Give as much instruction as needed.d. Retain some important tasks.e. Obtain feedback on the delegated task.

DecentralizationRefers to passing authority to lower levels, as

opposed to centralization.Favored when key decisions are made low in

management hierarchy.Centralized firm exercises more control than

does decentralized firm. Advanced technique is for decentralized units

to be autonomous yet cooperate for common good.

Determinants of Organizational CultureOrigins could lie in values, administrative

practices, and personality of founder.Culture mirrors choices, behavior, and

prejudices of top-level managers.Society influences organizational culture.Industry in which firm operates can be

influential, such as steel mill versus investment bank.

Dimensions of Organizational CultureValues (almost synonymous with culture)Relative diversity of membersResource allocation and rewards (which

behavior or units gets the most)Degree of change (stable versus rapidly

changing)Sense of ownership (of workers)Strength of culture (extent of impact)

How Workers Learn the Culture

Socialization is major approach.Contacts with others lead to understanding

values, norms, and customs essential for adapting to the organization.

Teachings of leaders can also help impart culture to organizational members.

Consequences and Implications of Organizational CultureCompetitive advantage and financial success Productivity, quality, and moraleInnovation (culture of innovation)Compatibility of mergers and acquisitionsPerson-organization fit (fitting the firm)Direction of leadership activity (points leader

toward what needs to be done)

Managing and Sustaining the Culture Managers bring about culture change bya. Being a role model for change.b. Using rewards to reinforce the culturec. Selecting people with values that match the

cultured. Sponsoring training in support of culture e. Disseminating type of change required

Creating Change at Individual versus Organizational LevelMany useful changes take place at individual

and small group level, rather than organizational level.

“Movers and shakers” seek results rather than to avoid offending people.

Organizational level change is change in fundamental way company operates.

All employees must be eager for change.

Unfreezing-Changing-Refreezing Model of ChangeUnfreezing is reducing or eliminating

resistance to change.Changing or moving to a new level involves

considerable two-way communication including group discussion.

Refreezing includes rewarding people for implementing the change.

Resistance to Change Fear of an unfavorable outcome.Not wanting to break old habits.Concern about upsetting balance of an

activity, such as in-person contact.Desire to cling to the old, however flawed.Awareness of the weakness of a proposed

change. Resistance can be feedback from workers

about potential problems.

Gaining Support for Change1. Allow for discussion and negotiation.2. Allow for participation.3. Point to reasons for, including finances. 4. Establish sense of urgency.5. Use a visual people can relate to.6. Avoid change overload.7. Allow for first-hand observation of change.8. Get best people behind program.

Six Sigma and Planned ChangeShift to quality-conscious firm is total systems

approach to change.Six Sigma can means (a) 3.4 errors in 1

million opportunities, (b) philosophy of driving out waste and improving quality, and (c) data-driven method for achieving near-perfect quality with emphasis on preventing problems.

To work well, Six Sigma must fit culture.