CH-8 Organization Structure – Management: Leading and Collaborating in a Competitive World : Chapter Notes

Chapter 8 Organization Structure LEARNING OBJECTIVES 1 Explain how differentiation and integration influence an organization’s structure. 2 Summarize how authority operates. 3 Define the roles of the board of directors and the chief executive officer. 4 Discuss how span of control affects structure and managerial effectiveness. 5 Explain how to delegate effectively. 6 Distinguish between centralized and decentralized organizations. 7 Summarize ways organizations can be structured. 8 Identify the unique challenges of the matrix organization. 9 Describe important integrative mechanisms. CHAPTER OUTLINE Fundamentals of Organizing Differentiation Integration The Vertical Structure Authority in Organizations Hierarchical Levels Span of Control Delegation Decentralization The Horizontal Structure The Functional Organization The Divisional Organization The Matrix Organization The Network Organization Organizational Integration Coordination by Standardization Coordination by Plan Coordination by Mutual Adjustment Coordination and Communication Looking Ahead CHAPTER RESOURCES Experiential Exercises 8.1. The Business School Organizational Chart 8.2. Designing a Student-Run Organization That Provides Consulting Services 8.3. When Should a Company Decentralize Cases Stanley Lynch Investment Group Social Enterprise Kiva Organizes by Function Lecturettes 8.1. The Managerial Span of Control KEY STUDENT QUESTIONS This chapter is such a wealth of information that you may be overrun with student questions as you lecture. Two popular topics for questions include specifics about organizational design and delegation. For instance, your students may ask: 1. “What is the most widely used approach to organizational structure in U.S. businesses and what are the reasons it is used most?” 2. “What is the difference between the board of directors and the chief executive officers?” 3. “How can a manager overcome his or her fears of delegating?” 4. “What different things can managers do to increase the likelihood that their associates will follow through with delegated tasks?” While these questions generally have straightforward answers, they also provide opportunities to examine some of the complexities of organizational structure. For example: 1. While most mid- to large-size organizations in the United States today have a functional structure, the majority of U.S. companies are small, entrepreneurial firms. These businesses tend to have very organic structures since they have few employees, so all employees must do everything. 2. The apparent answer to this question is that the CEO is an employee of the organization, while the board of directors is an outside governing body, whose members are not employees of the organization. Most organizations have strict independence standards which apply to the board of directors. However, when answering this question, you might also discuss how boards of directors pick new members (they are typically chosen by the CEO) and what kinds of rewards people get for being on boards of directors (everything from deferred compensation, to life insurance, to limousine service!) 3. The answer here is that “fear” is often a manager’s sense that what has been delegated will not be done, or will be done incorrectly. This can be overcome by working with the employee to clarify expectations, giving the employee the right training to do the job, and setting up regular checkpoints to assess progress. This question also presents an excellent opportunity to discuss how delegation differs from the perspective of the employee and the manager. Teaching Tip Ask everyone in the class to write down what they think the word “fear” refers to in this question. Then get students who have been managers to share their answers, followed by students who have been employees. The employee group is likely to see “fear” as worry about being upstaged by an employee, while the management group is likely to see “worry” as concern that the employee won’t do the job right. 4. Employees will be more likely to follow through on their tasks if they know why they are doing those tasks if they consider the tasks to be important, and they have a say in how to do the tasks, and if they are rewarded for those tasks. In addition, clear expectations, training, and regular checkpoints also help to be sure that the tasks will be done on time. CLASS ROADMAP POWERPOINTS Slide 1 Organizational Structure Slide 2 Chapter Introduction Quote Slide 3 Learning Objectives MANAGEMENT IN ACTION Leadership and Structural Change at General Motors For decades now, the story of General Motors has been one of a giant trying to move nimbly. The image conveyed has not always been pretty. GM’s market share has been sliding since its peak in 1962, and its legacy costs have put a ceiling on profits. GM became known for being slow to respond to consumer tastes and unready for the global economy. The 2008 financial crisis almost spelled the end of GM, which was rescued by a loan from the federal government. In November 2010, GM emerged from bankruptcy, and its board of directors chose an outsider as CEO. Daniel Akerson is a Navy veteran who has turned around other struggling businesses. Akerson had worked at changing both the way GM is organized and the way its people work together. He presided over a return to profitability, and the company began repaying its government loans. I. FUNDAMENTALS OF ORGANIZING POWERPOINTS Slide 4 Fundamentals of Organizing Slide 5 Differentiation Slide 6 Integration LO 1: Explain how differentiation and integration influence an organization’s structure. The organization chart depicts the positions in the firm and the way they are arranged A. Differentiation 1. Differentiation is an aspect of the organization’s internal environment created by job specialization and the division of labor. 2. The organization is comprised of many different units that work on different kinds of tasks, using different skills and work methods. (Exhibit 8.1) a. Division of labor – work of the organization is subdivided into smaller tasks. b. Specialization refers to the fact that different people or groups often perform specific parts of the entire task. B. Integration 1. Integration means that these differentiated units are put back together so that work is coordinated into an overall product. 2. Coordination refers to the procedures that link the various parts of the organization to achieve the organization’s overall mission. Example 8.1 Integration The KSS Design Group is an architectural and design practice that was founded in 1991. Their core competency is integration—their home page boasts that “Our range of services includes master planning, architecture, interior design, graphics, and branding, and we can bring these disciplines together into a seamless package for any given project.” In an article in “Design Week,” Sara Wilkins discusses the need to break down the traditional divisional structure of most creative companies—KSS tries to “actively and positively mix our varied skill sets.” She stresses the role education and communication have played in helping to integrate the various functions of her organization, and she says that KSS continually invests in training, both for their employees and their clients. They also pull people together by making sure that everyone in the organization works in all of the diverse industry sectors served by KSS, and by having regular internal project reviews, where everyone in the organization is given the opportunity to offer objective opinions about projects. CONNECT Click and Drop: Pros and Cons of Different Departmentalized Structures (A keyboard navigable alternate version is also available.) SUMMARY As the tasks of organizations become increasingly complex, the organization inevitably must be subdivided—that is, departmentalized—into smaller units or departments. The three basic approaches to departmentalization are functional, divisional, and matrix. There are strengths and weaknesses that characterize each of these types of structures, and each structure is particularly suited for a different type of environment. ACTIVITY This click and drag exercise has students match attributes to the functional, divisional, and matrix forms. CLASS DISCUSSION IDEAS Ask students to provide explanations of each of the features presented in the activity. A discussion of when the strength associate with the form outweighs the weakness may increase student understanding of when the organizational forms are most appropriate. II. THE VERTICAL STRUCTURE POWERPOINTS Slide 7 Authority in Organizations Slide 8 Hierarchical Levels Slide 9 Span of Control Slide 10 Delegation Slide 11 Advantages of Delegation Slide 12 Steps in Effective Delegation Slide 13 Decentralization LO 2: Summarize how authority operates. A. Authority in Organization 1. Corporate governance describes the oversight of the firm by its executive staff and its board of directors. 2. Authority is the legitimate right to make decisions and to tell other people what to do. 3. Authority resides in positions rather than in people. LO 3: Define the roles of the board of directors and the chief executive officer 4. Board of directors led by the chair, makes major decisions affecting the organization, subject to corporate charter and bylaw provisions. a. The board performs at least three major sets of duties: selecting, assessing, rewarding, and perhaps replacing the CEO determining the firm’s strategic direction and reviewing financial performance ensuring ethical, socially responsible, and legal conduct. b. Boards made up of strong, independent outsiders are more likely to provide different information and perspectives and to prevent big mistakes. 5. The chief executive officer is personally accountable to the board and to the owners for the organization’s performance. a. The CEO usually holds two positions either as the chair of the board or the president of the organization. 6. The top management teams a. These teams comprise a group of key members of the management team, which shares the authority of the CEO. b. Usually consisting of the CEO, president, chief operating officer, chief financial officer, chief human resources officer and other key executives. Example 8.2 Board of directors Real Estate Investment Trusts (REITs) provide their investors with income based on owning and operating real estate, including apartments, shopping centers, homes, and other properties. Like many other types of organizations, their boards of directors have seen changes related to the Sarbanes-Oxley Act. One REIT, the Mills Corporation, was acquired in 2007 after an SEC investigation found problems with the company’s accounting records. The CEO stepped down as a result of the investigation, but there were several questions raised about whether or not the company’s board of directors should have reined in Mills’ expansion plans before they got out of control. An example of more appropriate board behavior can be found in the story of Developers Diversified Realty (DDR), which was considering going into a joint development venture in China. DDR’s board of directors voted down the plan, saying that any investment in China should be part of a long-term strategy and not a one-time deal. B. Hierarchical Levels 1. Top management a. Hierarchy is the authority levels of the organizational pyramid. b. The CEO occupies the top position and is the senior member of top management. c. Corporate governance is a term describing the oversight of the firm by its executive staff and board of directors. d. Presidents and vice presidents are also included in the top management. 2. Middle management a. This is the second broad level. b. Made up of managers who are in charge of plants or departments. 3. Operational management a. This is the lowest level of management. b. It includes office managers, sales managers, supervisors, and other first-line managers as well as the employees who report directly to them. c. Subunits are subdivisions of an organization LO 4: Discuss how span of control affects structure and managerial effectiveness. C. Span of Control 1. Span of control is the number of subordinates who report directly to an executive or supervisor. 2. Narrow spans build a tall organization with many reporting levels. 3. Wide spans create a flat organization with fewer reporting levels. 4. The optimal span of control depends on a number of factors: Is the work clearly defined and unambiguous? Are subordinates highly trained and have access to information? Is the manager highly capable and supportive? Are jobs similar and performance measures comparable? Do subordinates prefer autonomy to close supervisory control? If the answer is yes to these questions then the span can be wider; if no is the answer, then the span should be narrower. Example 8.3 Span of control The Friendly Ice Cream Corporation manufactures and serves ice cream, along with operating 530 company and franchised restaurants throughout the Northeast. In 2005 Friendly’s restructured their management team, and 1) reduced spans of control for front-line and second-line supervisors, 2) created a new recognition and reward program for servers, and 3) created an Internet-based guest feedback system. These changes were designed to help Friendly’s obtain higher margin revenues by helping employees to work more efficiently. LO 5: Explain how to delegate effectively. D. Delegation 1. Delegation is the assignment of new or additional responsibilities to a subordinate. (Exhibit 8.3) 2. Responsibility and accountability must be looked at before delegating any authority. 3. Responsibility is an assignment of a task that an employee is supposed to carry out. 4. Authority means that the person has the power and the right to make decisions, gives orders, draws upon resources, and does whatever else is necessary to fulfill the responsibility. 5. Accountability is the expectation that employees perform a job, take corrective action when necessary, and report upward on the status and quality of their performance. 6. Advantages of delegation a. Allows managers to accomplish much more than they would be able to do on their own b. Helps develop effective subordinates 7. How should managers delegate? a. Steps in Effective Delegation (Exhibit 8.3) b. Some tasks should not be delegated (i.e., disciplining subordinates) CONNECT Click and Drag: Delegating Structures (A keyboard navigable alternate version is also available.) SUMMARY Delegation is perhaps the most fundamental feature of management because it entails getting work done through others. Some managers are comfortable fully delegating an assignment to subordinates; others are not. ACTIVITY This click-and-drag exercise asks students to properly order the steps in the delegating process. CLASS DISCUSSION IDEAS Ask students to recount a time that they had a task delegated to them. Were the steps followed? Was the experience successful? Students might role play a delegation conversation, centering on a team project in school. Example 8.4 Delegation Students may not realize it, but one of the most important things a first level fire officer does when first arriving on the scene of a fire is to delegate responsibilities. The way firefighters approach a fire depends on the officer’s ability to: •Analyze the emergency scene conditions (elements of size-up) •Develop an initial (preliminary) incident action plan •Implement the (initial) action plan at an emergency operation. According to a 2007 article in “Firehouse,” these actions are equivalent to “calling a play” in football. If the fire officer calls the right play, all of the responding firefighters will know exactly what they are to do, and chances of injury will be minimized. LO 6: Distinguish between centralized and decentralized organizations. E. Decentralization 1. A centralized organization is an organization in which high-level executives make most decisions and pass them down to lower levels for implementation. 2. A decentralized organization is an organization in which lower-level managers make important decisions. III. THE HORIZONTAL STRUCTURE POWERPOINTS Slide 14 The Horizontal Structure Slide 15 The Functional Organization Slide 16 Advantages of Functional Organizations Slide 17 Social Enterprise Slide 18 Social Enterprise Questions Slide 19 Exhibit 8.6 The Divisional Organization Slide 20 Examples of Functional and Divisional Organization Slide 21 Advantages of the Product Approach Slide 22 Exhibit 8.9 The Matrix Organization Slide 23 Advantages of a Matrix Design Slide 24 Disadvantages of a Matrix Design Slide 25 Exhibit 8.12 The Matrix Diamond Slide 26 Exhibit 8.13 The Network Organization Slide 27 The Network Organization LO 7: Summarize the ways organizations can be structured. •As the task of an organization becomes increasingly complex, the organization inevitably must be subdivided or departmentalized into smaller units or departments. •Line departments are units that deal directly with the organization’s primary goods and services; they make things, sell things, or provide customer service. •Staff departments are those that provide specialized or professional skills that support line departments such as research, legal, accounting, public relations, and human resources department. •Departmentalization: subdividing an organization into smaller units; the three basic approaches are functional, divisional, and matrix A. The Functional Organization 1. In a functional organization, jobs are specialized and grouped according to business functions and the skills they require. (Exhibit 8.5) 2. The value chain depicts the relationships among separate activities that are performed to create a product or service. 3. Advantages of the functional organization are listed in Exhibit 8.6. B. The Divisional Organization 1. Divisional organization incorporates departmentalization that groups units around products, customers, or geographic regions. (Exhibit 8.7) 2. Examples of Functional and Divisional Organization (Exhibit 8.8) 3. Product division – all functions that contribute to a given product are organized under one manager. a. Information needs are managed more easily. b. People have a full-time commitment to a particular product line. c. Task responsibilities are clear. d. People receive broader training. 4. Customer and geographical divisions a. Customer divisions are structured around the customer needs and provide faster, better service. b. Geographic divisions are structured around specific regions, districts, territories, and country. 5. Advantages of the divisional organization are listed in Exhibit 8.9. CONNECT Video Case: Organization Structure at One Smooth Stone SUMMARY In a broad sense, organization structure answers two basic questions: Who does what? Who reports to whom? This nine-minute video presents One Smooth Stone, based in Downers Grove, Illinois, an event, and communications company. The company helps plan and execute all types of events for its large client base. In the 20 years it has been in business; it has expanded into a global enterprise covering 30 countries. The company's philosophy of doing business is to be fast, smart, and kind. The video presents the product, the culture, and structure of the organization. ACTIVITY Students are presented a number of multiple-choice questions that apply the terms relevant to organizational design to complete after viewing the video. CLASS DISCUSSION IDEAS A class discussion could be created based on how the organizational form may reinforce One Smooth Stone’s organizational culture and ultimately financial success. A review of Fayol’s management principles, regarding their application and relevance to the case, would be of value here. Example 8.5 Functional and divisional organization The Allstate Insurance Company combines functional and divisional organization structures by separating the company into three divisions—Personal Property & Casualty, Business Insurance, and Financial (Life and Savings). Within each of these divisions are functional departments such as Human Resources, Finance, Underwriting, etc. The Sales and Claims departments are companywide departments, since all Allstate sales agents sell all three kinds of insurance, and claims representatives can handle any type of claim. LO 8: Identify the unique challenges of the matrix organization. C. The Matrix Organization 1. The matrix organization is an organization composed of dual reporting relationships in which some employees report to two superiors-- a functional manager, and a divisional manager. (Exhibit 8.10) 2. Unity-of-command principle is a structure in which each worker reports to one boss, who in turn reports to one boss 3. It is a hybrid form of organization in which functional and divisional forms overlap. 4. Pros and Cons of the Matrix Design (Exhibit 8.11) 5. Matrix Survival Skills 6. The Matrix Form Today (Exhibit 8.12) Example 8.6 Matrix structure Phillips, a large Dutch electrical company, has had a matrix structure from the end of World War II, organized by both national lines and product divisions. For example, the head of a washing machine division in Italy might report to both the head of Philips in Italy as well as a washing machine executive in the Netherlands. Recently, however, the company began modifying its matrix structure to improve accountability within the organization. Under the slogan “One Phillips,” the company is gradually encouraging employees to collaborate with people outside of their divisions and to move around in their careers, rather than staying in one geographical location or with one product. Management in Action Progress Report General Motors Experiences a Crisis and Leadership Change Through 2013, Daniel Akerson’s plans for turning around GM included reorganizing the corporation into more of a functional structure. By placing more authority in the hands of functional executives, Akerson hoped to force more collaboration across models and geographic markets. Akerson also appointed Mary Barra to head GM’s global product development. Barra streamlined that group, eliminating a layer of management, and simplified the choices available for new designs. • Review the advantages and drawbacks of functional organizations and geographic divisions. Which ones may have contributed to the decision to finally address the faulty ignition switch? A functional organization offers economies of scale, more effective monitoring of the environment, closer adherence to performance standards, more opportunity to develop employees’ skills, the ability of technical specialists to focus on their specialties, and clear lines of communication and authority. However, functional employees may lose sight of broader corporate goals, and coordination may suffer. Eliminating a layer of management in this structure may have contributed to the decision to finally address the faulty ignition switch issue. • What do you think will be the impact of GM’s effort to create a more centralized structure based on functional groups? Answers will vary, depending on students’ level of optimism about GM. Their predictions should relate to the advantages and disadvantages of centralization, including the potential for greater control and the greater distancing of employees from customer groups. D. The Network Organization 1. The network organization is a collection of independent, mostly single-function firms that collaborate on a product or service. (Exhibit 8.13) 2. The dynamic network is also called the modular or virtual corporation. It is comprised of temporary arrangements among partners that can be assembled and reassembled to adapt to the environment. 3. Successful networks offer flexibility, innovation, quick responses to threats and opportunities, and reduced costs and risks. But to be successful, they must a. choose the right specialty b. choose collaborators that are also excellent, but provide complementary strengths c. make certain that all parties fully understand the strategic goals of the partnership d. be able to trust all parties with strategic information and trust that collaborators will deliver, even when business demands are heavy. 4. A broker is a person who assembles and coordinates participants in a network Example 8.7 Network organization Jay Galbraith has coined the term “The Front-Back Organization” to refer to companies which are structured one way near customers, and another way near operations. For example, The Gap organizes its stores geographically, giving individual store managers a fair amount of autonomy in operations. However, the manufacturing operations, research and design, accounting, and other corporate departments are organized functionally, making them more efficient. The “go-between” is the Marketing Department, which is charged with taking information from the stores and making sure it gets to the corporate departments, and vice-versa. Multiple Generations at Work Will Online Networks Replace Traditional Hierarchies? According to journalist and author, Malcolm Gladwell, the United States is reaching a “generational tipping point” in which Millennials may force dramatic changes in the structure and function of organizations. During several recent speeches to industry groups, Gladwell discussed how Baby Boomers and other older generations prefer to organize around the concept of a hierarchy where strong leadership, expertise, strategy, and a guiding ideology are common. In comparison, Gladwell points out that Millennials have a different worldview: “[Millennials] take a profoundly different attitude toward authority and toward expertise.” What does this generational shift mean for organizations that use hierarchical structures? They may want to be shifting their cultures and designing jobs and teams in a way that encourages collaborative, network—driven engagement. Organizations may want to make these adjustments soon given that by 2025, approximately 75 percent of workers in the United States will be from the Millennial generation. IV. ORGANIZATIONAL INTEGRATION POWERPOINTS Slide 28 Coordination by Standardization and Formalization Slide 29 Coordination by Plan and Adjustment Slide 30 Exhibit 8.14 Managing High Information-Processing Demand Slide 31 Increasing Information-Processing Capability Slide 32 Increasing Information-Processing Capability Slide 33 Management in Action Slide 34 In Review LO 9: Describe important integrative mechanisms. A. Coordination by Standardization 1. Standardization is establishing common rules and procedures that apply uniformly to everyone. 2. These rules and procedures should apply to most (if not all) situations. Example 8.8 – Standardization The International Organization for Standardization (ISO) is “the world’s largest developer of voluntary International Standards.” Since its founding in 1947, ISO has published thousands of standards for all aspects of business, including food safety and healthcare. Most recently, their ISO 26000 Social Responsibility standard was created recognizing that “Business and organizations do not operate in a vacuum. Their relationship to the society and environment in which they operate is a critical factor in their ability to continue to operate effectively. It is also increasingly being used as a measure of their overall performance.” B. Coordination by Plan 1. Interdependent units are required to meet deadlines and objectives that contribute to a common goal. 2. It does not require the same high degree of stability and routinization required for coordination by standardization. 3. Employees are free to modify and adapt their actions, as long as deadlines and targets required. C. Coordination by Mutual Adjustment 1. Involves feedback and discussions to jointly figure out how to approach problems and devise solutions that are agreeable to everyone. 2. Can be very effective when problems are novel and cannot be programmed in advance with rules, procedures, or plans. D. Coordination and Communication 1. Reducing the need for information 2. Increasing information processing capability a. Direct contact b. Liaison roles c. Task forces d. Teams e. Product, program, or project managers f. Matrix organizations 3. Managing high information-processing demands (Exhibit 8.14) CONNECT Manager’s Hot Seat: Work-life Balance SUMMARY In this 10-plus minute Manager’s Hot Seat Video Case, Samantha Peters, Technical Director at Quantum Gaming, a video-game company, is conducting a scheduling meeting. Samantha must ask employees to put in a serious amount of extra hours to meet a valued customer’s request. In addition to various challenges of her leadership, a discussion of the Quantum Gaming’s overall responsibilities to its workers, corporate culture, and work-life balance issues sidetrack the meeting. The employees pressure Samantha to make a decision right then and there; however, she cannot confirm their requests before talking to upper management. ACTIVITY Students answer a series of multiple-choice on the delegation process, organizational structure, and coordination to answer after viewing the video. CLASS DISCUSSION IDEAS Expand on the learning from the exercise by asking students to evaluate Samantha’s leadership in the meeting. Would her request have faced less resistance if she had followed the delegation process? Instructors may also discuss how organizational culture may have impacted the events projected in the video. V. LOOKING AHEAD 1. Organizations are more like a motion picture – they move. 2. Organizations are becoming more flexible and innovative; even virtual are forming. 3. No organization is static. Management in Action – Onward Regrouping and Changing the Culture at General Motors Mary Barra is now the CEO of GM. Barra has the daunting task of changing the way managers and employees behave at GM. She has made it clear that GM’s inward-looking culture and slow responses to safety issues and product defects will no longer be tolerated. She has pledged to hold people accountable for their actions. Barra refuses to sweep the tragic events of 2014 under the rug. She wants GM decision makers to remember the pain that the ignition switch problem (and 10-year delay) caused for victims and the company: “I never want to put this behind us. I want to put this painful experience permanently in our collective memories.” • How might Barra’s efforts at changing the culture at GM increase the chances that the structural changes will be effective in the long-term? When an organization’s culture is in line with its hierarchical structure, the chances of long-term effectiveness increase. This is because the culture of an organization should match the way an organization is run, and the processes within the core of the company. If these two are at odds, the chances of long-term effectiveness are slim. • What personal factors are likely to affect GM’s success in achieving greater organizational integration? The success of GM’s efforts to improve integration will depend on people’s willingness to work together constructively. Also, people will relate through informal networks of relationships, not only through lines on an organizational chart. Friendships, communication styles, and interest groups will help or hinder the achievement of Barra’s vision for GM. BOTTOM LINE Why not eliminate all middle layers to save the most time and money? This question is intended to spur some thought about the common dislike of “bureaucracy”; answers will vary. Although we might assume that if many layers are cumbersome and expensive, the best alternative is an entirely flat organization, the reality is that employees look for someone to take the lead and see the impact of individual efforts on group results. In all but the smallest companies, a few executives at the top cannot possibly keep track of all customer desires, all production processes, and all the other activities of a modern business organization, nor can they be experts in every function. Organizations need managers with a reasonable span of control, as discussed in the next section, and this requires at least a few layers of management. Under what conditions might an effort at delegation backfire? This question previews the following discussion of how to delegate; answers will vary. Possible conditions that would interfere with delegation would include delegating to someone who lacks the necessary skill, failing to provide needed resources (including information), delegating to employees who don’t want to develop skills or move out of their comfort zone, and delegating responsibility without authority. In addition, delegating without any effort to check progress makes it impossible for the employee to correct and learn from any mistakes or misunderstandings. What makes centralized decision-making slower? The employee who recognizes the need for a decision is often not the employee charged with making that decision, so the employee who sees the need must take time to deliver information about the need and then await a decision from the centralized decision maker. Why might a company centralize its information technology (IT) department? A common reason is to lower costs through economies of scale. This type of arrangement also contributes to the development of technical expertise; the organization can afford the best people with specialized knowledge because they can apply that knowledge to situations throughout the organization. Suppose your international company sells scientific equipment to high schools, universities, and businesses. Would you set up customer divisions or geographic divisions? Why? Answers will vary. The arguments should be related to whether geographic differences or user differences have more to do with customer needs—for example, the kinds of scientific equipment that would be purchased or the kinds of sales/service assistance required. How might a matrix structure increase speed? In a matrix, people who work on designing and making products are part of the same group as people who work directly with customers. Therefore, if a customer need arises, people involved with the product are quickly aware of it, and if a product issue arises, people who interact with customers can get out the word immediately. Conflicts affecting one side of the business or the other can be resolved without traveling up and down the organizational hierarchy first. Which functions would you include in a network to improve sustainability? Answers will vary. Students don’t have enough information to answer definitively for all organizations. However, they should consider what they have learned so far about business functions and suggest some functions that are related to sustainability. Possibilities might include engineering, facilities management, marketing (especially product and packaging issues), purchasing, information technology, and finance. In fact, any function of an organization uses resources, so a case might be made for including it in decisions about how to accomplish goals with fewer demands on those resources. Why does more information tend to improve solutions? Information is needed to understand the problem, diagnose the problem, identify alternatives, and choose the best alternative. The right pieces of information required to do this well may already be known to someone in another function or division. If students have already covered Chapter 3, refer them back to that chapter for a discussion of the importance of fully diagnosing a problem and identifying alternatives. SOCIAL ENTERPRISE Kiva Organizes by Function Kiva connects via the Internet a global network of lenders with entrepreneurs in impoverished communities. Individuals can lend as little as $25 to help empower a budding entrepreneur to start a business to feed his or her family. In just 12 years, 1.6 million lenders have made it possible for Kiva to make nearly $694 million in loans to individuals in 82 different countries. With an average repayment rate of just over 97 percent, this social enterprise is making an impact on the lives of countless individuals, their families, and their communities. 1. Why do you think Kiva is using a functional approach to structuring its organization? Given the global complexity of Kiva’s operations, the organization hopes to achieve economies of scale by grouping employees and volunteers with similar training and skills into 8 functional areas. 2. Referring to the eight areas illustrated above, which would be considered staff activities? Line activities? Staff activities include people and legal. These areas support the main function of the organization and provide advice on how to better meet the strategic objectives of the organization rather than being directly involved in the daily operations of the company. These staff activities have a dotted line on the organizational chart. Development, Finance, and Engineering are line activities. These activities directly support the strategic objectives of the organization and are part of the central hierarchy with a straight line as opposed to dotted. LECTURETTES LECTURETTE 8.1: The Managerial Span of Control THE MANAGERIAL SPAN OF CONTROL PRINCIPLE 1. The managerial span of control refers to the number of subordinates that a given manager can effectively direct. For decades, management thinkers have struggled with the issue of the managerial span of control because it directly impacts the size and shape of the organizational structure of a business, and it impacts both the effectiveness and efficiency of the work process. GRAICUNAS’S THEORY 1. In 1933, A.V. Graicunas published an article, “Relationship in Organization,” in The Bulletin of the International Management Institute in which he established his theory of the span of managerial control. Graicunas noted that when dealing with subordinates, the manager had to consider not only the direct relationships between himself or herself and each subordinate as an individual but also his or her relationships with different groups of subordinates as well as the cross relationships among all members of the workgroup. Graicunas recognized that the total of these relationships was quite numerous within a large workgroup. 2. Graicunas’ research led him to find that the manager’s direct relationships increased in proportion to the additional size of the group. However, he found that the group and cross relationships increased more than proportionately. 3. The resulting Graicunas Theory calculates the number of possible relationships in a workgroup from the formula: R = n (2(n-1) + n – 1) Where R = the number of relationships and n = the number of subordinates managed. For example, if a manager must supervise three subordinates, the total number of possible relationships in the workgroup is calculated as R = 3(22 + 3 – 1) = 18. As the number of subordinates is increased, the total number of possible relationships grows rapidly. For instance, if the number of subordinates is increased to five, the number of relationships increases to R = 5(24 + 5 – 1) = 100. CONSEQUENCES OF THE SPAN OF MANAGEMENT 1. Since the number of relationships with which a manager must deal increases geometrically as subordinates are added to the workgroup, the span of management becomes a critical organizational factor. For many jobs, it is found that a manager has difficulty directing more than five or six people. In other jobs, spans of managerial control have been expanded to 50 or more. 2. Where the work is unstructured, as in a research laboratory, the span of management is quite low. However, on an assembly line, where the work is highly structured, larger spans of control are usually possible. 3. Subordinate relationships are more positive, and control is maximized by small or “narrow” spans of management. However, narrow spans of control cost money in terms of salaries, fringe benefits, space and other support factors. Perhaps an even more serious problem with narrow spans of control is the cost of longer communication and authority channels. Narrow spans slow down the flow of essential information and delimit the delegation of authority. 4. On the other hand, wide spans of managerial control often result in overworked and stressed-out managers, ineffective decision-making, and inefficient operations that tend to go out of control. EXPANDING THE SIZE OF THE SPAN OF MANAGEMENT 1. Obviously, it is in the best interests of the organization to keep the spans of control as wide as possible without allowing the process to get out of control. As a result, researchers have established a number of ways by which organizations may attempt to increase the span of management without adverse effects on the organization. Some of those techniques for increasing the span of control are listed below: Reduce the number of personal contacts required. Improve the management skills of the managers. Instruct managers to spend more time in direct supervision of subordinates. Have more of the planning done by a planning staff or by senior managers, to free lower managers from the time-consuming task of planning. Make sure that plans and goals are clearly stated. Try to implement plans that do not require constant change and alteration. Reduce the importance of the decisions the manager and his or her group have to make. Reduce the variety of problems the manager and his or her group have to solve. Locate the manager in close proximity to the work to be managed. Design the work so that it features repetitive tasks. Decrease the complexity of operations. Design jobs so that less training and expertise is needed. Reduce the need for the coordination of work functions. Increase the ability level of the subordinates. Facilitate and encourage delegation to subordinates. Improve the clarity of authority delegations. Use more support from staff. Use more technical support such as robots and computers. Improve communications. Improve the management information system. Instructor Manual for Management: Leading and Collaborating in a Competitive World Thomas S. Bateman, Scott A. Snell, Robert Konopaske 9781259927645, 9781259546945