Structuring Organizations for Today's Challenges

GEПING ТО KNOW Denise Morrison, СЕО of Campbell Soup Company S ince 1869 the Campbell Soup Company has been one of America's most iconic brands. Jts products are familiar not only to mШions of consumers, but also to art lovers around the wor1d, thanks to Andy Warhol's legendary paintings of the company's soup cans. As а result, Campbell must walk а fine line between catering to people's prior expecta­ tions and updating the business to reflect current trends. lt's СЕО Denise Morrison's job to keep the company оп this narrow path. After earning the top position in 2011, she went оп to oversee а major operational transfoгmation that replaced Campbell's unhealthy ingredients with sustainaЫe ones. This required far more effort than а standard rebranding project she and her colleagues had to evaluate every aspect of the busi­ ness and how it could Ье changed for the better. Fortunately, Morrison has been training for enormous tasks like this one since she was а child. Her father, а top executive at companies like АТ&Т, encouraged his four daughters to get а head start оп their careers. "Не was talking to us at а very early age that he thought the world was going to open up for women and he wanted us to Ье prepared,� said Morrison. "So, he taught us business.� Each night he brought products home for his daughters to discuss at the dinner tаЫе. During these famity focus groups, Morrison learned how to evatuate items and com­ municate her thoughts to her peers. Their father also placed а "job jar� in the house containing all the chores that needed to get done that week. His daughters had to decide among them­ selves who got assigned which chore, teaching them valuaЫe lessons about negotiation and goal achievement. This homegrown expertise proved to Ье essential for Mor­ rison's future accomplishments. Her first taste of success came at Boston College, where she graduated magna cum laude with degrees in economics and psychology. She then landed а job at Procter & GamЫe, soon followed Ьу а series of other senior ro1es at Nablsco, NestlE!, and Kraft. After building extensive experience in the food industry, Morrison took а position at Campbell as president of global sales. She moved оп to chief opeгating officer in 2010 and then became СЕО а year later. As she climbed up the corporate ladder, Morrison took care­ ful notice of how the food industry was changing. Ву the 2010s consumers started to move away from processed, unhealthy options and toward organic cuisine. This "seismic shift� in people's preferences convinced Morrison that Campbell had to change with the times. �we believe that we need to participate in this, so you сап either lead change or Ье а victim of it,� said Morгison. "l'd much rather lead it.� ln order to achieve this goal, she knew the company had to radically atter its operational structure. So along with acquiring healthy brands like Bolthouse Farms, Morrison closed down five underperforming plants while improving others. The сатрапу also had to find several new suppliers as it made the switch to sustainaЫe ingredients. After that, Campbell then needed to determine how these added costs would affect production as а whole. So far, the company has spent about half а decade refining this process and will likely continue to do so fог years to come. Thankfulty for Campbell, Morrison remains determined to see this monumental chore through to the end. "We're talking, thinking and acting differently about the food we make,� said Morгison. "We will Ье more honest about what goes in our food, how we made our food.� This chapter is aЬout changing and adapting organizations to today's markets, as Denise Morrison is doing at Campbell. Most managers never face challenges that Ыg, but there are plenty of opportunities in every firm to use the principles of organizing to manage-and benefit from-change. Sources: "How O,mpЬell Soup and Panera See Shifung Consumer Tastes." The Wa" Slreet Journal. October 16, 2016; Jane М Von Bergen. "C.зmpЬell Soup СЕО Knewas а Cllild She Wanted to Ве the Boss." Seattle Times, July 10, 2016: Jennifer Кёрlаn, "CampЬe!I to Cut Mfleial Flavo,s, Colors Ьу End of 2018." 8/oomЬerg Busmessweek. July 22. 2015; Denise Moнison. "СЕО of CampЬetl Soup: The B1gges1 Challenge of Lead,ng an k::onк: Food Brar,d," FOftune. OctoЬer 27, 2015: "Denlse М Mo1r1son: Pres1dent ar,d Chlef Exerutive Offк:er.' CampЬellsoupcompany.com, accessed SeptemЬer 2017 name that company WHEN THIS COMPANYeliminated all managers, it offered severance packages to all employees who didn’t think self-management was a good fit for them. Eighteen percent accepted the offer. Name this company. (The answer can be found in this chapter.) Outline the basic principles of organizational management. Organizing for Success You may be wondering why so many organizations fail. Adjusting to changing markets is a normal function in a capitalist economy. There will be big winners, like Amazon, Google, and Facebook, and big losers as well. The key to success is remaining flexible enough to adapt to the changing times. Often that means going back to basic organizational principles and rebuilding the firm on a sound foundation. This chapter begins by discussing such basic principles. Building an Organization from the Bottom Up The principles of organization apply to businesses of all sizes. Structuring the business, making an appropriate division of labor using job specialization and departmentalization, establishing procedures, and assigning authority are tasks found in most firms. How do these principles operate at your current or most recent job? No matter the size of the business, the principles of organization are much the same. Let’s say you and two friends plan to start a lawn-mowing business. One of the first steps is to organize your business. Organizing, or structuring, begins with determining what work needs to be done (mowing, edging, trimming) and then dividing up the tasks among the three of you; this is called a division of labor. One of you might have a special talent for trimming bushes, while another is better at mowing. 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. Many jobs can be done quickly and well when each person specializes. Dividing tasks into smaller jobs is called job specialization. For example, you might divide the mowing task into mowing, trimming, and raking. If your business is successful, you’ll probably hire more workers to help. You might organize them into teams or departments to do the various tasks. One team might mow while another uses blowers to clean up leaves and debris. If you’re really successful over time, you might hire an accountant to keep records, various people to handle advertising, and a crew to maintain the equipment. You can see how your business might evolve into a company with several departments: production (mowing and everything related to that), marketing, accounting, and maintenance. The process of setting up individual departments to do specialized tasks is called departmentalization. Finally, you’ll assign authority and responsibility to people so that you can control the whole process. If something went wrong in the accounting department, for example, you would know who was responsible. Structuring an organization, then, consists of devising a division of labor (sometimes resulting in specialization); setting up teams or departments to do specific tasks MAKING ETHICAL DECISIONS I magine you have begun a successful lawn-mowing service in your neighborhood. Other lawnmowing services in the area seem to hire untrained workers, many from other countries. They pay only the minimum wage or slightly more. Most obviously, however, they often provide no safety equipment. Workers don’t have ear protection against the loud mowers and blowers. Most don’t wear goggles when operating the shredder. Very few wear masks Would You Sacrifice Safety for Profits? when spraying potentially harmful fertilizers. You are aware there are many hazards connected with yard work, but safety gear can be expensive and workers often prefer to work without it. You are interested in making as much money as possible, but you also are concerned about the safety and welfare of your workers. You know yard maintenance equipment creates noise pollution, but quiet equipment is expensive. The corporate culture you create as you begin your service will last a long time. If you emphasize safety and environmental concern from the start, your workers will adopt your values. On the other hand, you can see the potential for making faster profits by ignoring safety rules and paying little attention to the environment as your competitors seem to do. What are the consequences? (like production and accounting); and assigning responsibility and authority to people. It also includes allocating resources (such as funds for various departments), assigning specific tasks, and establishing procedures for accomplishing the organizational objectives. From the start, you have to make ethical decisions about how you’ll treat your workers and how you will benefit the community (see the Making Ethical Decisions box). You may develop an organization chart (discussed later in this chapter) that shows relationships among people: who is accountable for the completion of specific work, and who reports to whom. Finally, you’ll monitor the environment to see what competitors are doing and what customers are demanding. Then you must adjust to the new realities. For example, a major lawn care company may begin promoting itself in your area. You might have to make some organizational changes to offer even better service at competitive prices. What would you do first if you began losing business to competitors? Compare the organizational theories of Fayol and Weber. The Changing Organization Never before in the history of business has so much change been introduced so quickly. As we noted in earlier chapters, much change is due to the evolving business environment— more global competition, a declining economy, faster technological change, and pressure to preserve the natural environment. Equally important to many businesses is the change in customer expectations. Consumers today expect high-quality products and fast, friendly service—at a reasonable cost. Doug Rauch, former president of Trader Joe’s, views employees and customers as two wings of a bird: you need both of them to fly. They go together—if you take care of your employees, they’ll take care of your customers. When your customers are happier and they enjoy shopping, it also makes your employees’ lives happier, so it’s a virtuous cycle.1 Managing change, then, has become a critical managerial function. That sometimes includes changing the whole organizational structure. For example, in 2015 technology giant Google restructured its organization into a conglomerate called Alphabet. Alphabet consists of independent units including Google (the search engine and related businesses such as Gmail and YouTube), Calico (health care), Verily (“smart” contact lens), Deep Mind (artificial intelligence), and several others. These smaller units have more flexibility to listen to customers and adapt accordingly.2 Such change may occur in nonprofit and government organizations as well as businesses. PA RT 3 B u s i n e s s M a n a g e m e n t : E m p o w e r i n g E m p l o y e e s t o S a t i s f y C u s t o m e r s Many organizations in the past were designed more to facilitate management than to please the customer. Companies designed many rules and regulations to give managers control over employees. As you’ll learn later in this chapter, this reliance on rules is called bureaucracy. The government has to wrestle with bureaucracy just as businesses do.3 To understand where we are in organizational design, it helps to know where we’ve been. We’ll look at that subject next. The Development of Organizational Design economies of scale The situation in which companies can reduce their production costs if they can purchase raw materials in bulk; the average cost of goods goes down as production levels increase. Henri Fayol introduced several management principles still followed today, including the idea that each worker should report to only one manager and that managers, in turn, should have the right to give orders for others to follow and the power to enforce them. Which of Fayol’s principles have you observed? Until the 20th century, most businesses were rather small, the processes for producing goods were relatively simple, and organizing workers was fairly easy. Organizing workers is still not too hard in most small firms, such as a lawn-mowing service or a small shop that produces custom-made boats. Not until the 1900s and the introduction of mass production (methods for efficiently producing large quantities of goods) did production processes and business organization become so complex. Usually, the bigger the plant, the more efficient production became. Business growth led to economies of scale. This term refers to the fact that companies can reduce their production costs by purchasing raw materials in bulk. Thus, the average cost of goods decreases as production levels rise. The cost of building a car, for example, declined sharply when automobile companies adopted mass production, and GM, Ford, and others introduced their huge factories. Over time, such innovations became less meaningful as other companies copied the processes. During the era of mass production, organizational theorists emerged. Two influential thinkers were Henri Fayol and Max Weber. Many of their principles are still being used in businesses throughout the world. Let’s explore these principles. Fayol’s Principles of Organization In France, economic theoretician Henri Fayol published his book Administration industrielle et générale in 1919. It was popularized in the United States in 1949 under the title General and Industrial Management. Fayol introduced such principles as the following: Unity of command. Each worker is to report to one, and only one, boss. The benefits of this principle are obvious. What happens if two different bosses give you two different assignments? Which one should you follow? To prevent such confusion, each person should report to only one manager. (Later we’ll discuss an organizational plan that seems to violate this principle.) Hierarchy of authority. All workers should know to whom they report. Managers should have the right to give orders and expect others to follow. (As we discussed in Chapter 7, this concept has changed over time, and empowerment is often more important now.) Division of labor. Functions are to be divided into areas of specialization such as production, marketing, and finance. (This principle too is being modified, as you’ll read later, and cross-functional teamwork is getting more emphasis.) Subordination of individual interests to the general interest. Workers are to think of themselves as a coordinated team. The goals of the team are more important than the goals of individual workers. (This concept is still very much in use.) Have you heard this concept being applied to football and basketball teams? Did you see this principle at work in the latest Super Bowl? Authority. Managers have the right to give orders and the power to enforce obedience. Authority and responsibility are related: whenever authority is exercised, responsibility arises. (This principle is also being modified as managers empower employees.) Degree of centralization. The amount of decision-making power vested in top management should vary by circumstances. In a small organization, it’s possible to centralize all decision-making power in the top manager. In a larger C H A P T E R 8 Stru ct ur in g Org an iz at ion s fo r Tod ay ’s C ha lle ng es organization, however, some decision-making power, for both major and minor issues, should be delegated to lower-level managers and employees. Clear communication channels. All workers should be able to reach others in the firm quickly and easily. Order. Materials and people should be placed and maintained in the proper location. Equity. A manager should treat employees and peers with respect and justice. Esprit de corps. A spirit of pride and loyalty should be created among people in the firm. Management courses in colleges throughout the world taught Fayol’s principles for years, and they became synonymous with the concept of management. Organizations were designed so that no person had more than one boss, lines of authority were clear, and everyone knew to whom to report. Naturally, these principles tended to be written down as rules, policies, and regulations as organizations grew larger. That process of rule making has often led to rather rigid organizations that haven’t always responded quickly to consumer requests. For example, in various cities, the Department of Motor Vehicles (DMV) and auto repair facilities have been slow to adapt to the needs of their customers. So where did the idea of bureaucracy come from? We talk about that next. Max Weber and Organizational Theory Max Weber’s book The Theory of Social and Economic Organizations, like Fayol’s, appeared in the United States in the late 1940s. Weber (pronounced Vay-ber), a German sociologist and economist, promoted the pyramid-shaped organizational structure that became popular in large firms. Weber put great trust in managers and felt the firm would do well if employees simply did what they were told. The less decision making they had to do, the better. Clearly, this is a reasonable way to operate if you’re dealing with relatively uneducated and untrained workers. Such was generally the case at the time Weber was writing. Most employees today, however, have considerably more education and technical skills. Weber’s principles of organization resembled Fayol’s. In addition, Weber emphasized: Job descriptions. Written rules, decision guidelines, and detailed records. Consistent procedures, regulations, and policies. Staffing and promotion based on qualifications. Weber believed that large organizations demanded clearly established rules and guidelines to be followed precisely. In other words, he was in favor of bureaucracy. Although his principles made sense at the time, rules and procedures became so rigid in some companies that they grew counterproductive. Some organizations today still thrive on Weber’s theories.4 United Parcel Service (UPS), for example, maintains strict written rules and decision guidelines. Those rules enable the firm to deliver packages quickly because employees don’t have to pause to make decisions—procedures are clearly spelled out for them. Some organizations that follow Weber’s principles are less effective than UPS because they don’t allow employees to respond quickly to new challenges. Later, we explore how to make organizations more responsive. First, let’s look at some basic terms and concepts. Turning Principles into Organizational Design Following theories like Fayol’s and Weber’s, managers in the late 1900s began designing organizations so that managers could control workers. Many companies are still organized that way, with everything set up in a hierarchy. A hierarchy is 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. Since one person can’t keep track of thousands of workers, 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. Max Weber promoted an organizational structure composed of middle managers who implement the orders of top managers. He believed less-educated workers were best managed if supervisors gave them strict rules and regulations to follow and monitored their performance. What industries or businesses today would benefit by using such controls? PART З Busines s Management: Empowering Employees to S atisfy Customers TYPICAL ORGANIZATION CHART Thls ls а rather standard chan wilh managers for major funcllons and supervisors reporllng 10 the managers. Each superv!sor manages three employees chain of command The llne of authority lhat moves from the top of а hlerarchy to the lowest level. organization chart А visual device that shows relatlonshlps among people and div1des lhe organization·s work: lt shows who ls accountaЫe for the completion of speclfic work and who reports 10 whom bureaucracy An organization wilh many 1ayers of managers who set rules and regulations and oversee all decisions. ■ TEST lhe top manager needs mапу lower-level managers 10 help. The chain of command is the line of authority that moves from the top of the hierarchy to the lowest level. Figure 8.1 shows а typical hierarchy оп ап organization chart. An organization chart is а visual device that shows relation­ ships among people and divides the organizatioп·s work: it shows who reports to whom. Some organizations have а dozen or more layers of management between the chief executive officer (СЕО) and the Iowest-level employees. If employees wanl to introduce work changes, they ask а supervisor (the first level of management). who asks his or her manager, who asks а manager at the next level up. and so оп. 11 сап take weeks or months for а decision to Ье made and passed from manager to manager until it reaches employees. At pharmaceutical company Pfizer, for example, there were опсе 17 layers between the chief executive and the lowest employee. Мах Weber used the word bureaucrat to describe а rniddle manager whose func1ion was to implement top management's orders. Thus. bureaucracy came to Ье lhe term for ал organization with many layers of managers. When employees in а bureaucracy or апу size have 10 ask managers Гог permission 10 makea change, the process may take so long that customers Ьесоmеаппоуеd. Has this happened 10 you in а department store or other organiza1ion? Since customers want efficient service­ and they want il 11011-'-slow service is simply not ассерtаЫе in today's competitive firms. Some companies are therefore reorganizing to let employees make decisions in order 10 please customers по matter what. Home Depot has adopted this approach to win шаге customers from competitors. Nordstrom employees сап accept а return from а customer without managerial approval, even if the item was not originally sold at that store. 5 As you read earlier in this book, giving employees such authority is called empo11·erme11t. Remeшber that empowerment works only when employees are given the proper training and resources 10 respond. Сал you see how such training would help first responders in crisis conditions? PREP Use SmartBook to help retain what you have learned. Access your instructor's Connect course and look for the SB/LS logo. • What do the terms division of Jabor andjob specialization mean? • What are the principles of management outlined Ьу Fayol? • What did Weber add to the principles of Fayol? C H A P T E R 8 Stru ct ur in g Org an iz at ion s fo r Tod ay ’s C ha lle ng es Evaluate the choices managers make in structuring organizations. Decisions to Make in Structuring Organizations When designing responsive organizations, firms have to make decisions about several organizational issues: (1) centralization versus decentralization, (2) span of control, (3) tall versus flat organizational structures, and (4) departmentalization. Choosing Centralized or Decentralized Authority Centralized authority occurs when decision making is concentrated at the top level of management. For example, Burger King has a globally centralized structure in which most major decisions are made by a core management team. While this organizational structure has the advantage of providing strong global control, it limits the flexibility to immediately respond to regional or local market changes and trends.6 McDonald’s believes that purchasing, promotion, and other such decisions are best handled centrally too. However, today’s rapidly changing markets, added to global differences in consumer tastes, tend to favor some decentralization and thus more delegation of authority. McDonald’s restaurants in England offer tea, those in France offer a Croque McDo (a hot ham-and-cheese sandwich), those in Japan sell rice, and Chinese McDonald’s offer taro and red bean desserts.7 Decentralized authority occurs when decision making is delegated to lower-level managers and employees more familiar with local conditions than headquarters management could be. Macy’s customers in California, for example, demand clothing styles different from what customers in Minnesota or Maine like. It makes sense to delegate to store managers in various cities the authority to buy, price, and promote merchandise appropriate for each area. Both Home Depot and Lowe’s are doing more to cater to local markets. Figure 8.2 lists some advantages and disadvantages of centralized and decentralized authority. centralized authority An organizational structure in which decision-making authority is maintained at the top level of management at the company’s headquarters. decentralized authority An organizational 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 describes the optimal number of subordinates a manager supervises or should supervise. What is the “right” span of control? At lower levels, where work is standardized, it’s possible to implement a broad span of control (15 to 40 workers). For example, one supervisor can be responsible for 20 or more workers assembling computers or cleaning movie theaters. The appropriate span gradually narrows at higher levels of the organization, because work becomes less standardized and managers need more face-to-face communication. The trend today is to expand the span of control as organizations adopt empowerment, reduce the number of middle managers, and hire more talented and better educated span of control The optimum number of subordinates a manager supervises or should supervise. ADVANTAGES AND DISADVANTAGES OF CENTRALIZED VERSUS DECENTRALIZED AUTHORITY Advantages PA RT 3 B u s i n e s s M a n a g e m e n t : E m p o w e r i n g E m p l o y e e s t o S a t i s f y C u s t o m e r s lower-level employees. Information technology also allows managers to handle more information, so the span can be broader still. Choosing between Tall and Flat Organizational Structures A broad span of control allows one supervisor to be responsible for many workers whose work tasks are predictable and standardized. In addition to assembly lines, can you think of other management situations that might benefit from a broad span of control? What about in a service industry? tall organizational structure An organizational structure in which the pyramidal organization chart would be quite tall because of the various levels of management. flat organizational structure An organizational structure that has few layers of management and a broad span of control. departmentalization The dividing of organizational functions into separate units. A FLAT ORGANIZATIONAL STRUCTURE In the early 20th century, organizations grew even bigger, adding layer after layer of management to create tall organizational structures. As noted earlier, some had as many as 17 levels, and the span of control was small (few people reported to each manager). Imagine how a message might be distorted as it moved up the organization and back down through managers, management assistants, secretaries, assistant secretaries, supervisors, trainers, and so on. The cost of all these managers and support people was high, the paperwork they generated was enormous, and the inefficiencies in communication and decision making were often intolerable. More recently, organizations have adopted flat organizational structures with fewer layers of management (see Figure 8.3) and a broad span of control (many people report to each manager). Flat structures can respond readily to customer demands because lowerlevel employees have authority and responsibility for making decisions, and managers can be spared some day-to-day tasks. In a bookstore with a flat organizational structure, employees may have authority to arrange shelves by category, process special orders for customers, and so on. Large organizations use flat structures to try to match the friendliness of small firms, whose workers often know customers by name. The flatter organizations become, the broader their spans of control, which means some managers lose their jobs. Figure 8.4 lists advantages and disadvantages of narrow and broad spans of control. Weighing the Advantages and Disadvantages of Departmentalization Departmentalization divides organizations into separate units. The traditional way to departmentalize is by function—such as design, production, marketing, and accounting. Departmentalization groups workers according to their skills, expertise, or resource use so that they can specialize and work together more effectively. It may also save costs and thus improve efficiency. Other advantages include the following: 1. Employees can develop skills in depth and progress within a department as they master more skills. 2. The company can achieve economies of scale by centralizing all the resources it needs and locate various experts in that area. 3. Employees can coordinate work within the function, and top management can easily direct and control various departments’ activities. Owner/ Manager C H A P T E R 8 Stru ct ur in g Org an iz at ion s fo r Tod ay ’s C ha lle ng es FIGURE 8.4 ADVANTAGES AND DISADVANTAGES OF A NARROW VERSUS A BROAD SPAN OF CONTROL Advantages The flatter the organization, the broader the span of control. Disadvantages of departmentalization by function include the following: 1. Departments may not communicate well. For example, production may be so isolated from marketing that it does not get needed feedback from customers. 2. Employees may identify with their department’s goals rather than the organization’s. The purchasing department may find a good value somewhere and buy a huge volume of goods. That makes purchasing look good, but the high cost of storing the goods hurts overall profitability. 3. The company’s response to external changes may be slow. 4. People may not be trained to take different managerial responsibilities; rather, they tend to become narrow specialists. 5. Department members may engage in groupthink (they think alike) and may need input from outside to become more creative. Looking at Alternative Ways to Departmentalize Functional separation isn’t always the most responsive form of organization. So what are the alternatives? Figure 8.5 shows five ways a firm can departmentalize. One way is by product. A book publisher might have a trade book department (for books sold to the general public), a textbook department, and a technical book department, each with separate development After the material for footballs has been cut and sewn in the Wilson Sporting Goods factory, it moves on to the lacing department where workers like this one open up the deflated balls and prepare them for lacing. What are the advantages and disadvantages of departmentalizing by processes like this? PA RT 3 B u s i n e s s M a n a g e m e n t : E m p o w e r i n g E m p l o y e e s t o S a t i s f y C u s t o m e r s FIGURE 8.5 WAYS TO DEPARTMENTALIZE Marketing manager By product A computer company may want to departmentalize by geographic location (countries), a manufacturer by function, a pharmaceutical company by customer group, a leather manufacturer by process, and a publisher by product. In each case the structure must fit the firm’s goals. Trade books President By function Production Technical books College texts Marketing By customer group By geographic location Canadian division Accounting President Commercial users Consumers Human resources Finance Manufacturers Institutions Vice president (international operations) Japanese division European division Korean division Production manager By process Cutters Dyers Stitchers and marketing processes. Such product-focused departmentalization usually results in good customer relations. Some organizations departmentalize by customer group. A pharmaceutical company might have one department for the consumer market, another that calls on hospitals (the CHAPTER 8 Structuring Organizations for Today's Challenges institutional market), алd another that targets doctors. You сап see how customer groups сап benefit from having specialists satisfying their needs. Some firms group their uлits Ьу geographic location because customers vary so greatly Ьу region. Japan. Europe. and South America may deserve separate departments. with obvi­ ous benefits. The decision about how to departmentalize depends оп the nature of the product and the customers. А few firms find that it's most efficient to separate activities Ьу process. For example, а firm that makes leather coats may have опе department cut the leather, another dye it. and а third sew the coat together. Such specialization enaЫes employees to do а bet­ ter job because they сап focus оп learning а few critical skills. Some firms use а comЬination of departmentalization techniques to create hybrid forms. For example. а company could departmentalize Ьу function, geographic location. and customer groups. ■ TEST PREP • Why are organizations becoming flatter? • What are some reasons for having а narrow span of control in an organization? • What are the advantages and disadvantages of departmentalization? .... Use SmartBook to help retain what you have learned. Access your instructor's Connect course and look for the S8/LS logo. • What are the various ways а firm сап departmentalize? Contrast the various organizati onal models. Organizational Models Now that we've explored the basic choices in organizational design, let's look in depth at four ways to structure an organization: (l) line organizations, (2) Iine-and-staff organiza­ tions, (3) matrix-style organizations, and ( 4) cross-functional self-managed teams. You·11 see that some of these models violate traditional management principles. Тhе business commu­ nity is in а period of transition, with some traditional orgaлizational models giving way to new structures. Such transitions сап Ье not only unsettling to employees and managers but also fraught with proЫems and errors. Line Organizations А line organization has direct two-way lines of responsiЬility, authority. and communication running from the top to the bottom of the organization, with everyone reporting to only опе supervisor. Мапу small businesses зге organized this way. For example. а locally owned pizza parlor might have а general manager and а shift manager. All the general employees report 10 the sh.ift manager, and he or she reports to the general manager or owner. А line organization does not have any specialists who provide managerial support. There is по legal department, accounting department, human resource department, or information technology (JT) department. Line organizations follow all or Fayol's traditional management rules. Line managers сап issue orders. enforce discipline, and adjust the orga­ nization as conditions change. In large businesses. а line organization may have the disadvantages or being too inПex­ iЬle, of having few speciaLists or experts to advise people along the line, and of having lengthy lines of comnшnication. Thus а line organization may Ье unaЫe to handle complex decisions relating 10 thousands of products and tons of paperwork. Such organizations usu­ ally turn 10 а line-and-staff form of organization. line organizatlon An o rganization that has dlrect two-way 1ines of responsiЫlity, authority, and communication runnlng from the top to the bottom ofthe organlzation, with all people reporting to only one supervisor. PA RT 3 B u s i n e s s M a n a g e m e n t : E m p o w e r i n g E m p l o y e e s t o S a t i s f y C u s t o m e r s Line-and-Staff Organizations line personnel Employees who are part of the chain of command that is responsible for achieving organizational goals. staff personnel Employees who advise and assist line personnel in meeting their goals. iSee It! Need help understanding line vs. staff employees? Visit your Connect e-book for a brief animated explanation. To minimize the disadvantages of simple line organizations, many organizations today have both line and staff personnel. Line personnel are responsible for directly achieving organizational goals, and include production workers, distribution people, and marketing personnel. 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. See Figure 8.6 for a diagram of a line-and-staff organization. One important difference between line and staff personnel is authority. Line personnel have formal authority to make policy decisions. Staff personnel have authority to advise line personnel and influence their decisions, but they can’t make policy changes themselves. The line manager may seek or ignore the advice from staff personnel. Many organizations benefit from expert staff advice on safety, legal issues, quality control, database management, motivation, and investing. Staff personnel strengthen the line positions and are like well-paid consultants on the organization’s payroll. Matrix-Style Organizations Both line and line-and-staff organizational structures may suffer from inflexibility. Both allow for established lines of authority and communication and work well in organizations with stable environments and slow product development (such as firms selling household appliances). In such firms, clear lines of authority and relatively fixed organizational structures are assets that ensure efficient operations. Today’s economy, however, is dominated by high-growth industries like telecommunications, nanotechnology, robotics, biotechnology, and aerospace, where competition is stiff and the life cycle of new ideas is short. Emphasis is on product development, creativity, special projects, rapid communication, and interdepartmental teamwork. From those changes A SAMPLE LINE-AND-STAFF ORGANIZATION Chief executive officer Human resource department Legal department Plant manager Supervisor Supervisor Supervisor Assembly-line workers Assembly-line workers Assembly-line workers = line = staff Marketing research department C H A P T E R 8 Stru ct ur in g Org an iz at ion s fo r Tod ay ’s C ha lle ng es A MATRIX ORGANIZATION In a matrix organization, project managers are in charge of teams made up of members of several departments. In this case, project manager 2 supervises employees A, B, C, and D. These employees are accountable not only to project manager 2 but also to the head of their individual departments. For example, employee B, a marketing researcher, reports to project manager 2 and to the vice president of marketing. President Vice president (project management) Vice president (manufacturing) Vice president (marketing) Vice president (finance) Vice president (engineering) Employee A (buyer) Employee B (marketing research) Employee C (budget analyst) Employee D (product designer) Project manager 1 Project manager 2 Project manager 3 grew the popularity of the matrix organization, in which specialists from different parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure (see Figure 8.7). In other words, a project manager can borrow people from different departments to help design and market new product ideas. The matrix structure was developed in the aerospace industry and is now familiar in areas such as banking, management consulting firms, accounting firms, ad agencies, and school systems. Among its advantages: It gives managers flexibility in assigning people to projects. It encourages interorganizational cooperation and teamwork. It can produce creative solutions to product development problems. It makes efficient use of organizational resources. As for disadvantages: It’s costly and complex. It can confuse employees about where their loyalty belongs—with the project manager or with their functional unit. It requires good interpersonal skills as well as cooperative employees and managers to avoid communication problems. It may be only a temporary solution to a long-term problem. If you’re thinking that matrix organizations violate some traditional managerial principles, you’re right. Normally a person can’t work effectively for two bosses. Who has the real authority? Whose directive has first priority? In reality, however, the system functions more effectively than you might imagine. To develop a new product, a project manager may be given temporary authority to “borrow” line personnel from production, marketing, and other line functions. The employees work matrix organization An organization in which specialists from different parts of the organization are brought together to work on specific projects but still remain part of a line-and-staff structure. ADAPTING TO CHANGE W hy stop at self-managed teams? Why not apply selfmanagement principles to the whole organization? That’s what companies like Zappos, Morning Star, and W.L.Gore have done. Using an organizational structure known as holacracy, these companies have eliminated hierarchies (aka bosses) altogether. In holacratic organizations, authority and decision making are given to “circles” (think of circles as teams of teams) throughout the organization. A circle is a group of “roles” working toward the same purpose that is formed or dissolved as the organization’s needs change. A role is a set of responsibilities for certain outcomes or processes. Roles can be created, revised, or abolished as needed. Individuals usually have Going Bossless more than one role, in multiple circles. As new goals and tasks develop, individuals create circles to deal with them. For example, a St. Louis television station mobilized temporary teams to add community voices to stories about major events, such as the financial crisis and the events in Ferguson. When the goals are reached, the circles disband. It would be impossible to keep track of who’s doing what where and when without technology. Systems such as GlassFrog or holaSpirit are used to list the purpose, accountability, and decision rights of every circle and every role. This information is available for everyone to see. Self-management isn’t appropriate for all organizations, or for all workers. When Zappos offered severance packages to all employees who didn’t think self-management was a good fit for them, 18 percent accepted the offer. What do you think it would be like to work in an organization with no bosses? Sources: Ethan Bernstein, John Bunch, Niko Canner, and Michael Lee, “Beyond the Holacracy Hype,”Harvard Business Review, July–August 2016; Erik Roelofsen and Tao Yue, “Case Study: Is Holocracy for Us?” Harvard Business Review, March–April 2017. together to complete the project and then return to their regular positions. Thus, no one actually reports to more than one manager at a time. A potential real problem with matrix management, however, is that the project teams are not permanent. They form to solve a problem and then break up. There is little chance for cross-functional learning because teams work together so briefly. Cross-Functional Self-Managed Teams cross-functional selfmanaged teams Groups of employees from different departments who work together on a long-term basis. One solution to the temporary nature of matrix teams is to establish long-lived teams and empower them to work closely with suppliers, customers, and others to quickly and efficiently bring out new, high-quality products while giving great service. Cross-functional self-managed teams are groups of employees from different departments who work together on a long-term basis (as opposed to the temporary teams established in matrix-style organizations). Self-managed means that they are empowered to make decisions without management approval. The barriers among design, engineering, marketing, distribution, and other functions fall when interdepartmental teams are created. Sometimes the teams are interfirm; that is, the members come from two or more companies. Cross-functional teams should be empowered and collaborative. They work best when leadership is shared. An engineer may lead the design of a new product, but a marketing expert may take the leadership position once it’s ready for distribution. See the Adapting to Change box to learn about how some organizations are taking self-management to a new level. Going Beyond Organizational Boundaries Cross-functional teams work best when the voice of the customer is brought in, especially in product development tasks. Suppliers and distributors should be on the team as well. A cross-functional team that includes customers, suppliers, and distributors goes beyond CHAPTER 8 Structuring Organizations for Today's Challenges organizariona] boundaries. When suppliers and distribшors аге in orher countries. cross­ functional teams may share market information across national boundaries. Government coordinators may assist such projects, leнing cross-functional teams break the barriers berween government and business. Cross-functional teams аге only one way businesses can interact with other compa­ nies. Next we look at others. ■ TEST PREP • What is the difference between line and staff personnel? • What management principle does а matrix-style organization challenge? • What is the main difference between а matrix-style organization's structure and the use of cross-functional teams? Use SmartBook to help retain what you have learned. Access your instructor's Connect course and look for the 58/LS logo. ldentify the benefits of interfirm cooperation and coordination. Managing the lnteractions among Firms Whether it involves customers, suppliers, distributors, or the government, networking uses communications technology and other means to link organizations and allow them to work together оп common objectives. Let's explore this concept further. networking Transparency and Virtual Organizations Using communicatlons technology and other means to trnk organlzations and allow them to work together on common objectlves. Networked organizations are so closely linked online that each сап find out what the others are doing in real time. Real tiшe simply means the present moment ог the actual time in which an event takes place. The Internet has allowed companies to send real-time data to organizational partners as they are developed or collected. The result is transparency (see Chapter 7), ,vhich occurs ,vhen а company is so open to other companies that electronic real tlme The presen1 moment ог the actual time in which something takes place. PA RT 3 B u s i n e s s M a n a g e m e n t : E m p o w e r i n g E m p l o y e e s t o S a t i s f y C u s t o m e r s virtual corporation A temporary networked organization made up of replaceable firms that join and leave as needed. benchmarking Comparing an organization’s practices, processes, and products against the world’s best. information is shared as if the companies were one. With this integration, two companies can work as closely as two departments in traditional firms. Can you see the implications for organizational design? Most organizations are no longer selfsufficient or self-contained. Rather, they are part of a vast network of global businesses that work closely together. An organization chart showing what people do within any one organization is simply not complete, because the organization is part of a much larger system of firms. A modern chart would show people in different organizations and indicate how they are networked. Networked organizational structures tend to be flexible.8 A company may work with a design expert from another company in Italy for a year and then not need that person anymore. It may hire an expert from a company in another country for the next project. Such a temporary network, made of replaceable firms that join and leave as needed, is a virtual corporation (see Figure 8.8). This is quite different from a traditional organizational structure; in fact, traditional managers sometimes have trouble adapting to the speed of change and the impermanence of relationships in networking. We discuss adaptation to change below; first, we describe how organizations use benchmarking and outsourcing to manage their interactions with other firms. Organizations historically tried to do all functions themselves. Each had its own department for accounting, finance, marketing, production, and so on. As we’ve noted, today’s organizations look to other organizations for help in areas where they do not generate world-class quality. Benchmarking compares an organization’s practices, processes, and products against the world’s best. As one example, K2 Skis is a company that makes skis, snowboards, in-line skates, and related products. It studied the compact-disc industry and learned to use ultraviolet inks to print graphics on skis. It went to the aerospace industry to get piezoelectric technology to reduce vibration in its snowboards (the aerospace industry uses the technology for wings on planes). It learned from the cable television industry how to braid layers of fiberglass and carbon, and adapted that knowledge to make skis. As another example, Wyeth, a pharmaceutical company, benchmarked the aerospace industry for project management, the shipping industry for standardization of processes, and computer makers to learn the most efficient way to make prescription drugs. Benchmarking also has a more directly competitive purpose. In retailing, Target may compare itself to Walmart to see what, if anything, Walmart does better. Target will then try to improve its practices or processes to become even better than Walmart. If an organization can’t do as well as the best in, say, shipping, it will try to outsource the function to an organization like UPS or FedEx that specializes in shipping. Outsourcing, remember, means assigning one or more functions—such as accounting, production, security, maintenance, and legal work—to outside organizations. Even small firms are involved in A VIRTUAL CORPORATION A virtual corporation has no permanent ties to the firms that do its production, distribution, legal, and other work. Such firms are flexible enough to adapt to changes in the market quickly. Production Firm Accounting Firm Distribution Firm CORE Firm Legal Firm Advertising Agency Design Firm C H A P T E R 8 Stru ct ur in g Org an iz at ion s fo r Tod ay ’s C ha lle ng es outsourcing. We’ve already discussed some problems with outsourcing, especially when companies outsource to other countries. Some functions, such as information management and marketing, may be too important to assign to outside firms. In that case, the organization should benchmark the best firms and restructure its departments to try to be equally good. It is important to remember that companies in other countries often outsource their functions to companies in the United States. We call that insourcing and it is the source of many jobs. When a firm has completed its outsourcing process, the remaining functions are its core competencies, those functions it can do as well as or better than any other organization in the world. For example, Nike is great at designing and marketing athletic shoes. Those are its core competencies. It outsources manufacturing, however, to other companies that assemble shoes better and less expensively than Nike can.9 Adapting to Change Once you have formed an organization, you must be prepared to adapt the structure to changes in the market. That’s not always easy to do. Over time, an organization can get stuck in its ways. Employees have a tendency to say, “That’s the way we’ve always done things. If it isn’t broken, don’t fix it.” Managers also get complacent. They may say they have 20 years’ experience when in fact they’ve had one year’s experience 20 times. Do you think that slow adaptation to change was a factor in the decline of the manufacturing sector in the United States? Introducing change is thus one of the hardest challenges facing any manager. Nonetheless, change is what’s happening at General Motors (GM), Ford, Facebook, and other companies eager to become more competitive. If you have old facilities that are no longer efficient, you have to get rid of them. That’s exactly what GM and other companies did.10 In fact, they asked the government to lend them billions of dollars to help.11 The Internet created whole new opportunities, not only to sell to customers directly but also to ask them questions and provide them with any information they want. To win market share, companies must coordinate the efforts of their traditional departments and their information technology staff to create friendly, easy-to-manage interactions. Younger people today are called digital natives because they grew up with the Internet and cell phones; using hightech devices is second nature to them. On the other hand, companies often need to retrain older employees to be more tech-savvy. While the ease and immediacy of communication created by technology may be powerful, being constantly connected to work does have its downsides (see the Connecting through Social Media box on the following page). Companies that are the most successful in adapting to change have these common traits: (1) they listen to customers, (2) they have inspirational managers who drive new ideas throughout the organizations, and (3) they often have had a close call with going out of business.12 Of course, adapting to change is difficult, but not changing can be disastrous. Nike’s core competencies are designing and marketing athletic shoes. The company outsources other functions (i.e., manufacturing) to other companies that assemble shoes better and cheaper than Nike could do on its own. What are the advantages of focusing on the company’s core competencies? What are the disadvantages? core competencies Those functions that the organization can do as well as or better than any other organization in the world. digital natives Young people who have grown up using the Internet and social networking. Restructuring for Empowerment To empower employees, firms often must reorganize dramatically to make frontline workers their most important people. Restructuring is redesigning an organization so it can more effectively and efficiently serve its customers. Until relatively recently, department store clerks and front-desk staff in hotels weren’t considered key employees. Instead, managers were considered more important, and they were responsible for directing the work of the frontline people. The organization chart in a typical firm looked much like a pyramid. A few service-oriented organizations have turned the traditional organizational structure upside down. An inverted organization has contact people (like nurses) at the top and the chief executive officer at the bottom. Management layers are few, and the manager’s job is to assist and support frontline people, not boss them around. Figure 8.9 illustrates the difference between an inverted and a traditional organizational structure. restructuring Redesigning an organization so that it can more effectively and efficiently serve its customers. inverted organization An organization that has contact people at the top and the chief executive officer at the bottom of the organization chart. CONNECTING THROUGH SOCIAL MEDIA Breaking the Connection M ost of us are connected online 24/7. This may not be such a good thing. According to Pew Research, 25 percent of couples argue about how much time they spend online. While some of that time may be social, increasingly it’s work related. Many employees regularly check messages outside of working hours. About 40 percent of people surveyed reported that they “frequently” check messages from the office. Many employers expect their workers to be available whenever they are needed. The continuous connection may make the employee appear committed to the job. However, the downside is that having a 24/7 connection to mobile devices is psychologically exhausting. The more hours employees spend working outside of office hours, the more likely they are to be stressed. is a need for employers to take a step back. She established a policy at the Huffington Post for employees to disconnect from the office. Employees are not expected to answer e-mail after hours or over the weekend. Given our current 24/7 connections, it’s unlikely that all companies will enact policies disconnecting employees from the office. Many workers have taken it upon themselves to set boundaries to achieve a work– life balance. For example, they let others know that they will not respond to messages after a certain hour. What can you do to let others (friends, family, co-workers, etc.) know what your social media boundaries are? This stress affects employee performance. Some corporate leaders are speaking out against the 24/7 work connection. For example, Arianna Huffington believes there Sources: “Staying Connected 24/7 Takes Its Toll,” Career Intelligence, accessed September 2017; Emerson Csorba, “The Problem with Millennials? They’re Way Too Hard on Themselves,” Harvard Business Review, May 2, 2016;Susanna Schrobsdorff, “Why We Shouldn’t Tell Workers When to Unplug,” Time, January 22, 2017. Companies based on this organizational structure support frontline personnel with internal and external databases, advanced communication systems, and professional assistance. Naturally, this means frontline people have to be better educated, better trained, and better paid than in the past. It takes a lot of trust for top managers to implement such a system—but when they do, the payoff in customer satisfaction and profits is often well worth the effort. COMPARISON OF AN INVERTED ORGANIZATIONAL STRUCTURE AND A TRADITIONAL ORGANIZATIONAL STRUCTURE Empowered frontline workers (often in teams) Top management Support personnel Middle management Top management Supervisory management Frontline workers Traditional Organization Inverted Organization C H A P T E R 8 Stru ct ur in g Org an iz at ion s fo r Tod ay ’s C ha lle ng es In the past, managers controlled information—and that gave them power. In more pro-gressive organizations today, everyone shares information, often through an elaborate data-base system, and among firms as well as within them. No matter what organizational model you choose or how much you empower your employees, the secret to successful organiza-tion change is to focus on customers and give them what they want. Explain how organizational culture can help businesses adapt to change. Creating a Change-Oriented Organizational Culture Any organizational change is bound to cause some stress and resistance among members. Firms adapt best when their culture is already change-oriented. Organizational (or corporate) culture is the widely shared values within an organization that foster unity and cooperation to achieve common goals. Usually the culture of an organization is reflected in its stories, traditions, and myths. Each McDonald’s restaurant has the same feel, look, and atmosphere; in short, each has a similar organizational culture. It’s obvious from visiting many McDonald’s restaurants that the culture emphasizes quality, service, cleanliness, and value. An organizational culture can also be negative. Have you ever been in an organization where you feel no one cares about service or quality? The clerks may seem uniformly glum, indifferent, and testy. Their mood pervades the atmosphere, and patrons become unhappy or upset. It may be hard to believe an organization, especially a profit-making one, can be run so badly and still survive. Clearly then, when you search for a job, study the organizational culture to see whether you will thrive in it. Some of the best organizations have cultures that emphasize service to others, especially customers. The atmosphere reflects friendly, caring people who enjoy working together to provide a good product at a reasonable price. Companies that have such cultures have less need for close supervision of employees. That usually means fewer policy manuals; organization charts; and formal rules, procedures, and controls. The key to a productive culture is mutual trust. You get such trust by giving it. The very best companies stress high moral and ethical values such as honesty, reliability, fairness, environmental protection, and social involvement.13 We’ve been talking as if organizational matters were mostly controllable by management. In fact, the formal structure is just one element of the total organizational system, including its culture. The informal organization is of equal or even greater importance. Let’s explore this notion next. organizational (or corporate) culture Widely shared values within an organization that provide unity and cooperation to achieve common goals. Managing the Informal Organization All organizations have two organizational systems. The formal organization details lines of responsibility, authority, and position. It’s the structure shown on organization charts. The other system is the informal organization, the system that develops spontaneously as employees meet and form cliques, relationships, and lines of authority separate from the formal organization. It’s the human side of the organization that doesn’t show on any organization chart. No organization can operate effectively without both types of organization. The formal system is often too slow and bureaucratic to let the organization adapt quickly, although it does provide helpful guides and lines of authority for routine situations. The informal organization is often too unstructured and emotional to allow careful, reasoned decision making on critical matters. It’s extremely effective, however, in generating creative solutions to short-term problems and creating camaraderie and teamwork among employees. In any organization, it’s wise to learn quickly who is important in the informal organization. Following formal rules and procedures can take days. Who in the organization knows how to obtain supplies immediately without the normal procedures? Which administrative assistants should you see if you want your work given first priority? Answers to these questions help people work effectively in many organizations. formal organization The structure that details lines of responsibility, authority, and position; that is, the structure shown on organization charts. informal organization The system that develops spontaneously as employees meet and form cliques, relationships, and lines of authority outside the formal organization; that is, the human side of the organization that does not appear on any organization chart. PART З Business Management: Empower ing Employees to Satisfy Customers ■ TEST The iлГormal organizatioп·s nerve center is thegгapevi11e, the system through which unof­ ficial inГormation Лows between and among managers and employees. Кеу people in the grape­ vine usually have consideraЫe iлЛuепсе. ln the old "us-versus-them" system оГ organizations. where managers and employees were oГten at odds. the inГormal system hindered eГГective management. ln more open orga­ nizations, managers алd employees work together to set objectives and design procedures. The inГormal organization is ап invaluaЫe managerial asset that сап promote harmony among workers алd establish the corporate culture. As eГfective as the inГormal organization may Ье in creating groнp cooperation. it сап still Ье equally powerГнl in resisting management directives. Employees may Гorm unions. go оп strike together, and generally disrupt operations. Learning to create the right corporate culture and work within the inГormal organization is thus а key to managerial success. PREP Us e Sma r18ook to help r etain what you have learned. Acces s your instru ctor's Connect cour se and lo ok for the S8/LS log o. • What is an inverted organization? • Why do organizations outsource functions? • What is organizational culture? SUMMARY Access your instructor's Conn ect cour seto chec k out SmartBook o r go to mheduc ation.com/ smartЬook for more info. • Outline the basic principles of organizational management. • What is happening today to American businesses? Тhеу are adjusting to changing markets. That is а normal function in а capitalist economy. Тhere will Ье big winners, like Google and Facebook. and big losers as well. The key to success is rcmaining flexiЫe and adapting to the changing timcs. C H A P T E R 8 Stru ct ur in g Org an iz at ion s fo r Tod ay ’s C ha lle ng es What are the principles of organizational management? Structuring an organization means devising a division of labor (sometimes resulting in specialization), setting up teams or departments, and assigning responsibility and authority. It includes allocating resources (such as funds), assigning specific tasks, and establishing procedures for accomplishing the organizational objectives. Managers also have to make ethical decisions about how to treat workers. Compare the organizational theories of Fayol and Weber. What were Fayol’s basic principles? Fayol introduced principles such as unity of command, hierarchy of authority, division of labor, subordination of individual interests to the general interest, authority, clear communication channels, order, and equity. What principles did Weber add? Weber added principles of bureaucracy such as job descriptions, written rules and decision guidelines, consistent procedures, and staffing and promotions based on qualifications. Evaluate the choices managers make in structuring organizations. What are the four major choices in structuring organizations? Choices to make in structuring and restructuring organizations cover (1) centralization versus decentralization, (2) breadth of span of control, (3) tall versus flat organizational structures, and (4) type of departmentalization. What are the latest trends in structuring? Departments are often replaced or supplemented by matrix organizations and cross-functional teams that decentralize authority. The span of control becomes larger as employees become selfdirected. Another trend is to eliminate managers and flatten organizations. Contrast the various organizational models. What are the two major organizational models? Two traditional forms of organization are (1) line organizations and (2) line-and-staff organizations. A line organization has clearly defined responsibility and authority, is easy to understand, and provides each worker with only one supervisor. The expert advice of staff assistants in a line-and-staff organization helps in areas such as safety, quality control, computer technology, human resource management, and investing. What are the key alternatives to the major organizational models? Matrix organizations assign people to projects temporarily and encourage interorganizational cooperation and teamwork. Cross-functional self-managed teams have all the benefits of the matrix style and are long term. Identify the benefits of interfirm cooperation and coordination. What are the major concepts involved in interfirm communications? Networking uses communications technology and other means to link organizations and allow them to work together on common objectives. A virtual corporation is a networked organization of replaceable firms that join and leave as needed. Benchmarking tells firms how their performance measures up to that of their competitors in specific functions. The company may then outsource to companies that perform its weaker functions more effectively and efficiently. The functions that are left are the firm’s core competencies. What is an inverted organization? An inverted organization places employees at the top of the hierarchy; managers are at the bottom to train and assist employees. PA RT 3 B u s i n e s s M a n a g e m e n t : E m p o w e r i n g E m p l o y e e s t o S a t i s f y C u s t o m e r s Explain how organizational culture can help businesses adapt to change What is organizational culture? Organizational (or corporate) culture consists of the widely shared values within an organization that foster unity and cooperation to achieve common goals. What is the difference between the formal and informal organization of a firm? The formal organization details lines of responsibility, authority, and position. It’s the structure shown on organization charts. The informal organization is the system that develops spontaneously as employees meet and form cliques, relationships, and lines of authority outside the formal organization. It’s the human side of the organization. The informal organization is an invaluable managerial asset that often promotes harmony among workers and establishes the corporate culture. As effective as the informal organization may be in creating group cooperation, it can still be equally powerful in resisting management directives. KEY TERMS benchmarking bureaucracy centralized authority chain of command core competencies cross-functional self-managed teams decentralized authority departmentalization digital natives economies of scale flat organizational structure formal organization hierarchy informal organization inverted organization line organization line personnel matrix organization networking organizational (or corporate) culture organization chart real time restructuring span of control staff personnel tall organizational structure virtual corporation CAREER EXPLORATION If you are interested in pursuing a major in organizational management, here are a few careers to consider. Find out about the tasks performed, skills needed, pay, and opportunity outlook in these fields in the Occupational Outlook Handbook (OOH) at www.bls.gov. organizations, ranging from companies in which there is only one employee to firms with thousands of employees. Management analyst—proposes ways to improve an organization’s efficiency. Top executive—works in nearly every industry in both large and small businesses and nonprofit CRITICAL THINKING Now that you have learned some of the basic principles of organization, pause and think about where you have already applied such concepts yourself or when you have been part of an organization that did. 1. Did you find a division of labor necessary and helpful? 2. Were you assigned specific tasks or left on your own to decide what to do? 3. Were promotions based strictly on qualifications, as Weber suggested? What other factors may have been considered? 4. What problems seem to emerge when an organization gets larger? 5. What organizational changes might you recommend to the auto companies? The airline industry? Technology firms?