Chapter Eight

Creating a Flexible
Organization

What Is an Organization?

A group of two or more people

working together to achieve a
common set of goals

– Organization chart
• A representation of the positions and
relationships in an organization

– Chain of command
• The line of authority that extends from the
highest to the lowest levels of the organization

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A Typical Corporate Organization Chart

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 Five Steps to Organizing a Business
1. Job Design
• Divide the work into separate parts and assign
those parts to positions
2. Departmentalization
• Group the positions into manageable units
3. Delegation
• Distribute responsibility and authority
4. Span of Management
• Determine the number of subordinates who will
report to each manager
5. Chain of Command
• Designate the positions with direct authority and
those that are support positions
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Job Design

• Job Specialization
– The separation of activities into distinct tasks
and the assignment of different tasks to
different people
• The Rationale for Specialization
– The “job” of the organization is too large for one person to accomplish
– A worker learning only a specific, highly specialized task should be able
to learn to do it efficiently
– Workers do not lose time switching from one operation to another
– Specialization makes it easier to design machinery to assist those who
do the job
– Specialization makes it easier to train new workers

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Departmentalization

• Grouping jobs into manageable units

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Departmentalization by Function
• Grouping jobs that relate to the same activity
(marketing, production, etc.)
• Small and newer organizations tend to base their
departmentalization on function
• Disadvantages
– Slows down the decision-making process
– Focuses attention on the department and not on the
organization as a whole

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 Departmentalization by Product
• Grouping jobs related to particular products or
services
• Used by firms that produce a variety of products
• Advantages
– Decision making is easier
– All activities related to the product or service are integrated
• Disadvantages
– Duplication of specialized activities
– Focuses attention on the product rather than the
organization

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Departmentalization by Location
• Grouping activities according to the defined
geographic area in which they are performed
• Advantage
– Allows the organization to respond to localized demands or
requirements
• Disadvantage
– Complexity of administration and control in many locations

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Departmentalization by Customer
• Grouping activities according to the needs of various
customer populations
• Advantage
– The capability to deal efficiently with unique customer groups
• Disadvantage
– Larger-than-usual administrative staff

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 Departmentalization: Combinations of Bases
• Multibase Departmentalization for New-Wave
Fashions, Inc.
– Most firms use more than one basis for departmentalization
to improve efficiency and to avoid overlapping positions.

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A Matrix Structure
A structure that combines vertical and horizontal lines of
authority, usually by superimposing product
departmentalization on functional departmentalization

Source: Management, Sixth Edition by Ricky W. Griffin. Copyright © 1999 by Houghton Mifflin Company. Adapted with permission.

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The Matrix Structure (cont’d)

Advantages Disadvantages
• Added flexibility • Chain of command
conflicts
• Increased productivity
• May take longer to resolve
• Higher morale problems and reach
• Increases in creativity and solutions
innovation • Personality clashes
• Personal development of • Poor communications
team members • Undefined individual roles
• Unclear responsibilities
• Difficulty in determining
how to reward individual
and team performance

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 Forms of Organizational Structure (cont’d)

• The Cluster Structure

– An organization that consists primarily of
teams with no or very few underlying
departments
• Strengths
– Small teams allows for flexibility to change direction
quickly and try new things
• Weaknesses
– Employees may be concerned about job security
– Increased stress due to rapid changes

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Forms of Organizational Structure (cont’d)

• The Network Structure (Virtual Organization)

– An organization in which administration is the
primary function performed and most other
functions such as engineering, production, and
marketing are contracted out to other firms
– Strength
• Flexibility allows the organization to adjust quickly to
changes
– Weaknesses
• Difficulty controlling the quality of work by other
organizations
• Low morale and high turnover of hourly workers
• Vulnerability of relying on outside contractors

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Delegation
Assigning part of a manager’s work and
power to other workers

– Responsibility
• The duty to do a job or perform a task
– Authority
• The power within the organization to
accomplish an assigned task.
– Accountability
• The obligation to accomplish an assigned job or
task

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 Steps in the Delegation Process
• The manager
assigns
responsibility
• The subordinate is
empowered to do
the task
• Ultimate
accountability
remains with the
manager
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Decentralization of Authority
• Centralized Organization
– Authority is concentrated at the upper levels of the
organization
• Bureaucratic Structure – a management system based on
a formal framework of authority that is carefully outlined and
precisely followed.

• Decentralized Organization
– Management consciously attempts to spread
authority widely in the lower levels of the
organization
• Organic Structure – a management system founded on
cooperation and knowledge-based authority.

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 Decentralization of Authority (cont.)

• Ambidextrous Organization
– Combines organic elements, which are
needed for creativity and the initiation of
change, with bureaucratic elements, which
are needed for efficiency.
• Innovation Departments
• Venture Teams
• Idea Champions

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Forbes Magazine New Year’s Resolutions

• My New Year’s wish is to keep our company
entrepreneurial even though it is growing fast. That
may sound easy, but avoiding bureaucracy is hard
work. In a typical corporate environment someone
comes up with a good idea, mentions it to an
immediate supervisor, a committee gets a hold of it
and – because big corporations have many meeting
rooms – they have many meetings about the idea –
and maybe it isn’t the same idea you started with….
In Tosco anyone who has a good idea has the ability
to just go and do it; he doesn’t have to check with
me. Thomas D. O’Malley
Chairman and Chief Executive
Tosco, Corp.

Forbes Magazine 1/13/97

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Span of Management (aka Span of Control)

The number of workers who report
directly to one manager.

Wide Span (Flat Organization)

Exists when a manager has a large number of
subordinates.

Narrow Span (Tall Organization)

Exists when a manager has only a few
subordinates.

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 The Span of Management

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The Span of Management (cont’d)

• Organizational Height
– Flat organizations
• Have wider spans of management and fewer levels
• Require managers to perform more administrative tasks
and to spend more time supervising subordinates
– Tall organizations
• Have narrow spans of management and many levels
• Have higher administrative costs (more managers)
• May distort internal communications during passage of
the communications through the multiple levels of
organization

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Chain of Command: Line and Staff

Management

• Line Management Position

– A position that is part of the chain of command;
includes direct responsibility for achieving the
goals of the organization

• Staff Management Position

– A position created to provide support, advice, and
expertise within an organization

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 Line and Staff Management

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Line-Staff Conflict

• Reasons for conflict

– Staff managers often have more formal education
– Staff managers are sometimes younger and more
ambitious
– Line managers may perceive staff managers as a
threat
– Staff managers may become angry if their
recommendations are not adopted
• Minimizing conflict
– Integrate line and staff managers into one team
– Ensure that responsibilities are clearly defined
– Hold both line and staff managers accountable for
results
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 Production Line manager
Vice President of Finance
Director of Human Resources
District Sales Manager

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Corporate Culture
The inner rites, rituals, heroes, and
values of a firm

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