CH-3-4 Decision Making, Problem Solving, and Ethics – Supervisory Management: The Art of Inspiring, Empowering and Developing People : Chapter Notes

This Document Contains Chapters 3 to 4 Chapter 3 Decision Making, Problem Solving, and Ethics Facebook Mark Zuckerberg has faced a challenge or two since introducing us to Facebook and the “social-networking era,” and effective decision making has been key to managing the company’s success. Facebook has grown exponentially in terms of revenues and users, yet, along the way, Facebook has made some poor decisions. One of the worst, according to Zuckerberg, was betting that as mobile technology matured, the demand for standalone apps would dissipate. Mark Zuckerberg has faced a challenge or two since introducing us to Facebook and the “social-networking era,” and effective decision making has been key to managing the company’s success. He made a choice of to focus their energies on developing software that would operate on Google’s open source system. However, this decision is not without risks. By choosing Google’s open source operating system to showcase its mobile muscle, Facebook may be alienating Apple, the creator of the iPhone. Also, because Facebook Home acts as a shield or layer between the Android user and Google’s system, Facebook Home is the first thing users see and interact with, which might make Google, one of Facebook’s key competitors, a might testy. This shows how decision making is an important and on-going process occurring at all levels within an organization. I. Role of Decision Making in Supervisory Management • Managers must make decisions whenever they perform any of the five management functions—planning, organizing, staffing, controlling, and leading. • Without decision making, the entire management system would cease to exist. ○ For example, in planning, the supervisor must decide which objectives to seek, which policies to establish, and what rules to institute. ○ In organizing, choices must be made as to who gets what authority and how duties and responsibilities are grouped. ○ In staffing, decisions must be made concerning employee selection, placement, training, and development; performance appraisal; compensation; and health and safety. ○ In controlling, if actual performance does not conform to planned performance, decisions must be made about how best to bring them together. ○ The function of leading entails deciding how best to communicate with and motivate employees. • The decisions that managers make often must be made quickly—and frequently with little information, or even conflicting information. A. Decision Making: The Heart of Supervisory Management • Decision making is central to the supervisor’s job. ○ Supervisors must continuously decide what is to be done, who is to do it, and how, when, and where it is to be done. ○ These decisions are interrelated. • One decision is affected by, and builds on, previous ones. B. Why Supervisors Need to Make So Many Decisions • Supervisory managers are involved in directing employees’ behavior toward achieving the organization’s goals, as well as those of the employees themselves • Supervisors must make more decisions more frequently, and often more quickly, because they operate on a production-oriented, day-by-day, person-to-person basis. • The lower the level of management, the greater the manager’s span of management, which is the number of immediate subordinates a manager can supervise effectively. ○ Therefore, supervisors make decisions that affect not only their own behavior, but also that of many other people. II. What is Decision Making? A. Decision Making Defined • Decision making is the conscious consideration and selection of a course of action from among two or more alternatives in order to produce a desired result. B. Elements Involved in Decision Making • Following are several facts one should know about decision making. ○ A decision may not be needed. ○ Decisions involve the future. ○ The process is a conscious one. ○ There must be more than one alternative solution. 1. A Decision May Not Be Needed • A wise decision maker begins by asking, “Is a decision needed?” ○ It may seem strange to include this question in a discussion of decision making, but it is important. ○ In many supervisory situations, no decision is needed, and decision making would be in vain. 2. Decisions Involve the Future • A supervisor’s decision making is oriented toward the future; it always contains an element of uncertainty. ○ The goal is to make the best decision at a specific time given the information available. 3. Decision Making a Conscious Process • Decision making involves a conscious process of selection. • In making a decision, the individual consciously: ○ Becomes aware of a want that needs to be satisfied ○ Seeks relevant behavioral alternatives ○ Evaluates them as a basis of choice 4. Decision Making Involves More Than One Alternative • For a true decision to be made, there must be two or more available alternatives to choose from, including the possibility of doing nothing. ○ Frequently, there are only two choices, as in a “yes or no” or “to do or not to do” situation. • Most decision situations involve several alternatives with varying expected outcomes. C. Types of Decisions to be Made • Programmed decisions are those that are routine and repetitive. ○ Because such decisions tend to be similar and must be made frequently, supervisors usually establish a systematic way of handling them. • Non-programmed decisions are those that occur infrequently. ○ Because different variables are involved, requiring a separate and different response each time, establishing a systematic way of dealing with such decisions is difficult. D. How Decision Making and Problem Solving Relate • An opportunity is a set of circumstances that provides a chance to improve a situation or help reach a goal. • A problem is an existing unsatisfactory situation causing anxiety or distress that must be addressed. • Effective supervisors must be able to identify problems and their cause(s), to analyze complex and involved situations, and to solve problems by removing their cause(s). ○ However, placing too much emphasis on problems can prevent one from identifying opportunities. ○ After all, solving a problem only eliminates or neutralizes a negative situation. • Progress or advancement comes from seeking and identifying opportunities; recognizing the emotions, needs, and motivations of the people involved; and analyzing ways of satisfying them. III. How to Make Decisions A. Step 1: Define the Idea or Problem • A decision is only as good as the correct definition of the problem. The right cure for the wrong problem is just as bad as the wrong cure for the right problem. ○ However, it is not always easy to know what the problem is or which opportunity is the best one to seek. • If the decision to be made involves solving a problem, its cause, or the factors that are creating it, must be determined. ○ One should be careful to identify the true problem, not just the symptoms. • Following are 10 action steps many successful managers take to identify the exact source and origin of elusive problems in the workplace. ○ Ask. Some managers think they have to know or come up with all the answers. ○ Let someone else do the asking. ○ Check out rumors. ○ Pay attention to veteran employees. ○ Test the communication systems. ○ Revisit policies and procedures. ○ Re-examine expectations. ○ Review the reward system. ○ Re-evaluate vendors. ○ Look to the competition • All good supervisors have to be problem solvers. ○ In business, as in the medical model, the basis for any solution (cure) is an accurate diagnosis. ○ To succeed as a problem solver, supervisors need to learn to be a good diagnostician. • The first rule is don’t guess or rush to judgment. • Be methodical and thorough. • Take time in identifying what’s wrong. • Misdiagnosis in management—as in the medical profession—is the first step to malpractice. And there is no malpractice insurance for supervisors. B. Step 2: Develop Alternatives • Alternatives are possible courses of action that can satisfy a need or solve a problem. ○ Because it is easier to choose from a few alternatives than from many, it is good to reduce the number at some point by creating a “short list.” ○ Also, one should be aware that, if choices are limited, they may include only undesirable ones. C. Step 3: Collect, Interpret, and Evaluate Information about Each Alternative • Sometimes standing orders, policies, procedures, rules, and regulations provide the relevant information. ○ Other sources include one’s own experience, company records and reports, discussion with the people directly and indirectly involved, and personal observations. • The effective evaluation of alternatives involves looking objectively at the pros and cons of each one. • Choices can be evaluated in many ways. ○ The information can be written down on a type of balance sheet with the reasons for each alternative on one side and the reasons against it on the other. ○ A process of elimination can be used in which the undesirable (or less desirable) choices are dropped. D. Step 4. Select the Preferred Alternative • When reaching the point where a choice must be made, one should look at the conclusions made from step 3 and then logically and rationally pick the alternative that is most desirable for all concerned from objective, ethical, and practical points of view. • Selecting the preferred alternative involves cost/benefit analysis and risk analysis. ○ Using the technique of cost/benefit analysis, one can estimate what each alternative will cost in terms of human, physical, and financial resources. • Then estimate the expected benefits. • Finally, compare the two estimates. • The one with the greatest payoff is chosen, where the ratio of benefits to cost is most favorable. ○ Analysis of risk is inherent in decision making. • Risk is the possibility of defeat, disadvantage, injury, or loss. • Prudent decision makers try to minimize risk by effectively forecasting outcomes and considering all variables. E. Step 5: Implement the Decision • Effective decision making doesn’t stop when you choose from among alternatives. The decision must be put into operation. ○ This is a difficult part of decision making because one must face and deal with people who may not like the choice. ○ Many good supervisory decisions are ineffective because of the way they’re implemented. F. Step 6: Follow Up, Evaluate, and Make Changes—If Needed • The last step in the decision making process involves exercising management’s control function. • If implementing the decision does not achieve the desired results, the decision can be changed or modified. IV. Approaches to Decision Making and Problem Solving • Two approaches that are particularly useful in both decision making and problem solving are the Myers–Briggs Type Indicator and the Vroom–Yetton model. ○ The Myers–Briggs Type Indicator is the better known and is used throughout the world. A. The Myers-Briggs Type Indicator • The 126-item Myers-Briggs Type Indicator (MBTI) helps identify an individual’s personal style. ○ Although it measures eight dichotomies of personality types, although the four internal dimensions are: sensing versus, intuition, thinking versus, and feeling. • These four are directly related to decision making and problem solving. These four are directly related to decision making and problem solving. • According to Myers and Briggs, people who rely primarily on sensing, or becoming aware of things through the five senses, tend to be patient, practical, and realistic. ○ Those who rely primarily on intuition tend to be impatient, idea and theory oriented, and creative. • Although everyone uses both ways of perceiving (sensing and intuition), Myers and Briggs indicates that at an early age, people develop a preference for one method over the other. ○ People who trust and prefer thinking, or using a rational, logical process to come to impersonal conclusions, are quite skillful in dealing with matters that require logic, objectivity, and careful examination of facts. ○ Those who trust and prefer feeling, or using innate processes that take into account one’s own and others’ values and beliefs, tend to be adept at working with other people and successful in applying skills in interpersonal and human relations. • The ideal is to maintain a balance by developing capability in all four internal dimensions. This is especially important for decision making, because all four dichotomies can be valuable in the decision-making method. ○ Sensing, which helps in developing and facing facts as well as being realistic about the nature of the problem or opportunity, is helpful in step 1, recognizing a problem or opportunity. ○ Intuition, on the other hand, is used in areas where creativity is needed to see possibilities and develop opportunities. • It is therefore helpful in step 2, developing alternative courses of action. ○ Because thinking is impersonal and logically considers the consequences of cause and effect, it is helpful in step 3, evaluating the alternatives. ○ Feeling comes into play when it is necessary to consider the values and ethics of others and the impact of the final decision on them. • This provides sensitivity in selecting the preferred alternative and implementing it. B. A Well-Balanced Myers-Briggs Profile • Myers-Briggs is based on the work of Carl Jung who saw type development as a lifelong process. • People grow and develop problem-solving and decision-making processes if they have the ability to learn from experience. ○ One should have the ability to use the appropriate dimension at the appropriate time, thus gaining good balance and wholeness in problem solving and decision making. C. The Vroom-Yetton Model • The Vroom-Yetton model provides guidelines on the extent to which subordinates are involved in decision making or problem solving. ○ This involvement may run the gamut from consensus decision making by a natural or self-managing work team, a committee, or an ad hoc task force to the manager making the decision with minimal or no involvement of others. • The extent of employee involvement is based on the situation, the quality of information available, the importance of subordinates’ acceptance of the decision, and the time to make the decision. 1. Participation • There are five participation styles (A-E) representing the varying degrees of participation by others a manager uses in decision making. ○ There are two autocratic approaches (A and B), two consultative approaches (C and D), and one group consensus approach (E). 2. Appropriate Style • A manager can use a decision tree in determining which approach to use. ○ To use the model for a particular situation, one must start at the left-hand side of the tree and work toward the right. ○ When a box is encounter, answer the corresponding question and proceed to the next appropriate box. ○ The decision style designation finally reached will suggest which of the participation styles to be used. D. Creative Problem Solving • More organizations and individual managers are involving subordinates in decision making and problem solving, particularly using styles similar to D and E in the Vroom–Yetton model. ○ One of the primary reasons for this trend is the concept of synergy. V. The Concept of Synergy and Some Processes of Creative Problem Solving • Synergy means that the whole is greater than the sum of the parts. ○ This concept is especially applicable in the use of teams and ad hoc task forces in problem solving. ○ Increasingly, this type of synergy is being achieved by teams throughout the world. ○ This emphasis on synergistic teamwork is recognized in the United States by Rochester Institute of Technology’s College of Business and USA Todays Quality Cup Awards. A. Developing Creativity • Creativity is the process of developing something unique or original. • Scientists generalize that the right hemisphere of the brain captures our intuitive impulses. Right-hemispheric functions are frequent catalysts for solution alternatives. ○ Alternatively, the brain’s left hemisphere functions in logical, analytical, and linear ways, allowing the decision maker to evaluate his or her intuitive, imaginative alternatives. ○ Although the brain has a multifunctional capacity, the decision maker may allow his or her preferred brain functioning to dominate and can allow left-side evaluation and analysis to encroach on right-brain intuitive ideas prematurely. ○ Using right-hemisphere functions as thought generators and following them with left-brained functions results in powerfully effective “whole-brained” creativity. • Three techniques that are very useful in the idea generation process are brainstorming, the Crawford Slip technique, and the nominal grouping technique. B. Brainstorming • Brainstorming refers to a group of individuals responding to a question such as “How can we improve communication?” without evaluating the ideas as they are generated. ○ The ideas are offered and recorded, no matter how silly they may appear and without regard to the rank of individuals or the value of any idea. Sorting out the value of respective ideas comes later. • Larry Hirschorn, management consultant and writer, has suggested four guidelines to follow when using this powerful technique of brainstorming: ○ The group favors quantity over quality. ○ Team members refrain from judging anyone’s contributions; they can ask questions later, in the evaluation part. ○ Team members avoid censoring. ○ Pride of authority is minimized; team members should feel free to offer variants and build on one another’s ideas. • Brainstorming is especially useful in developing alternatives during step 2 of the decision-making or problem-solving process. • Brainstorming is also useful in the following dimensions of creative problem solving: ○ Defining all possible problems ○ Redefining problems ○ Determining all possible causes for a problem ○ Listing all possible actions for implementing the chosen solution. • Formally appointed committees rarely use brainstorming; problem-solving teams use it in a more creative and effective manner. C. The Crawford Slip Technique • The Crawford Slip Technique makes use of two elements that are important in achieving creativity—fluency and flexibility. ○ Fluency is the ability to let ideas flow out of your head like water over a waterfall. ○ Flexibility is the ability to use free association to generate or classify ideas in categories. D. Nominal Grouping Technique • The nominal group technique (NGT) is a structured group technique for generating ideas through round-robin individual responses, group sharing without criticism, and written balloting. VI. Becoming Creative • Part of being creative is changing perspectives. ○ For some, this may mean getting in touch with one’s intuitive side. • To do so, one must try not to think logically about a situation, but rather, think about the possibilities. ○ For others, becoming creative may be as simple as doing something different, for example: Go a different way to work; read a political blog or watch a news program that contains information that is completely opposite of your political views; try a different restaurant or bar; etc. VII. Ethical Considerations Play a Part • Supervisors should have a true concern for the well-being of others, both inside and outside the organization. ○ Therefore, supervisors should not only obey all laws and conform to the ethical codes of practice established by their employer and society, but also have a personal set of ethical principles that guides their actions. • Ethics are the standards used to judge the “rightness” or “wrongness” of one person’s behavior toward others. ○ The concept of ethical behavior is the individual’s personal ethic; it is the highest and most rigid level of behavior. ○ The next highest level is adhering to professional and organizational codes of ethics, which are statements of what is and isn’t acceptable behavior. ○ The lowest level is the legal level, where people are all expected to adhere to the “law of the land.” • Making a profit with no regard for the repercussions of operating methods can be disastrous. ○ Ethical operations will take into account many factors including the impact on the overall economic well-being of the local community and the community at large. ○ The reputation of a fine organization and its financial standing can be soiled quickly by operating in an unethical manner. A. Ethical Organizations • Ethical organizations are composed of three pillars: ethical individuals, ethical leadership, and sound structures and systems. 1. Ethical Individuals • Ethical individuals are honest and act with integrity. • Ethical people can be trusted by others and can be relied upon to make the “right” choice, even in very challenging circumstances. 2. Ethical Leadership • Ethical leadership is the center pillar of the ethical organization. • Leaders guide the way; they are the visible face of the organization to internal as well as external stakeholders. • If leaders act swiftly to deal with unethical behavior, this sends a direct message regarding what will and will not be tolerated. 3. Sound Structures and Systems • It is important that corporations create and sustain cultures that support ethical behavior. • Developing a values statement or code of ethics is a good starting point, but to ensure this document has teeth, it is necessary to appoint a chief ethics officer to chair an ethics committee responsible for conducting ethics training and developing whistle-blowing mechanisms, such that the true spirit of the ethics document permeates throughout the entire organization. VIII. Chapter Review The PowerPoint slides correlated with the Lecture Outline above are available on the Instructors CD-ROM and on the product support website. PowerPoint Slide 3-1 Chapter 3 Title PowerPoint Slide 3-2 Learning Objectives PowerPoint Slide 3-3 Learning Objectives (cont’d) PowerPoint Slide 3-4 Role of Decision Making in Management PowerPoint Slide 3-5 Role of Decision Making in Management PowerPoint Slide 3-6 Decision Making is the Heart of Supervisory Management (Text Exhibit 3-1) PowerPoint Slide 3-7 Decisions and Supervisors PowerPoint Slide 3-8 Decision Making PowerPoint Slide 3-9 Decision-Making Process (Text Exhibit 3-2) PowerPoint Slide 3-10 Types of Decisions PowerPoint Slide 3-11 How Decision Making and Problem Solving Relate (Text Exhibit 3-3) PowerPoint Slide 3-12 How Decision Making and Problem Solving Relate PowerPoint Slide 3-13 Steps in Decision Making PowerPoint Slide 3-14 Steps in Decision Making PowerPoint Slide 3-15 Myers-Briggs Type Indicator® (MBTI®) PowerPoint Slide 3-16 Characteristics of Different Personality Types (Text Exhibit 3-6) PowerPoint Slide 3-17 Characteristics of Different Personality Types (cont’d) (Text Exhibit 3-6) PowerPoint Slide 3-18 The Vroom-Yetton Model PowerPoint Slide 3-19 Alternative Participation Styles PowerPoint Slide 3-20 Decision Tree, Governing Group Problems (Text Exhibit 3-8) PowerPoint Slide 3-21 Synergy and Creativity PowerPoint Slide 3-22 Deferred Judgment PowerPoint Slide 3-23 Brainstorming PowerPoint Slide 3-24 Brainstorming PowerPoint Slide 3-25 Crawford Slip Technique PowerPoint Slide 3-26 Nominal Grouping Technique PowerPoint Slide 3-27 Ethical Considerations PowerPoint Slide 3-28 The Three Pillars of Ethical Organizations (Text Exhibit 3-11) PowerPoint Slide 3-29 Important Terms 1. Peter Drucker states that a big decision-making error supervisors frequently make is failing to get a handle on a problem. Often, managers plunge in prematurely. Why do you think many managers make this common mistake? Students’ answers may vary. The urge to do something, anything is strong. American managers have cultivated the reputation for decisive leadership, which propels them to reach a quick decision. It is much harder to patiently sift through alternative. 2. Discuss the following statement: It’s better for a manager to try to carry out a poor decision for the sake of worker confidence. You can’t build worker confidence by continually admitting the poor decisions you make. Students’ answers may vary. This, also, is a pitfall that many managers encounter. They believe their leadership depends on never admitting to a mistake. It is easier to keep pursuing the initial poor decision than to stop, reevaluate, refocus, and pursue another solution. The effective manager uses poor decisions to learn how to better make decisions in the future. 3. What are the pros and cons of decisions made by groups such as committees and task forces as compared to decisions made by one person? A major advantage of group decision making is that, ideally, it results in improved decisions, as more points of view and areas of expertise are utilized. It can also result in better communication, improved morale, and a stronger group commitment to the decision once it is made. Among the disadvantages of group decision making is the fact that the supervisor remains accountable for the group’s decision. Group decision making also takes time at the expense of the group members’ other organizational duties. If there is a strong personality among the group, he or she can dominate the group, and the decision may not reflect a true consensus. Finally, group decision making is difficult to use if the decision must be made quickly. 4. Is it possible for someone to be a good decision maker but a poor supervisor? Explain. Decision making involves technical and administrative skills. A good supervisor also needs extensive human relations skills. The supervisor also needs to work through his or her employees to implement the decision. A good decision is only as good as its end result. Effective decision making doesn’t stop at choosing from among alternatives. The difficult part of decision making is when it involves facing and dealing with people who may not like the choice. Many good supervisory decisions are ineffective because of the way they’re implemented. 5. One supervisor says that she finds procrastination to be a big help in her decision making. Do you agree or disagree? Why? Students’ answers may vary. “Procrastination” may actually be good decision making if the manager is using the time to develop and evaluate alternatives instead of making a hasty decision. However, if procrastination is simply avoiding the difficult decision, the manager will quickly be labeled as indecisive. 6. Is it possible to operate as an ethical organization without one or more of the three pillars? Discuss. Students’ answers may vary. An organization can operate as a business, but the business will not be an ethical organization without one or more of the three pillars—ethical individuals, ethical leadership, and sound structures and systems. Preferably, all three pillars should exist. Students might discuss the effect of having only one or two, and, of course, all three pillars in an organization. Skill Builder 3.1 Coast Guard Cutter Decision Problem Works with SCANS competencies: Information, Resources, Systems This is the first of two decision-making exercises. The situation is that a Coast Guard Cutter is involved in a search and rescue operation in deteriorating weather conditions. The captain must make a decision whether to continue the search or move to a safer position to ride out the storm. Using the Vroom-Yetton model, choose one of the five styles of participation given in Text Exhibit 3-7. Using participation style A, you solve the problem yourself. Using participation styles E, you are willing to accept and implement any solution that has the support of the entire group. Styles B, C, and D represent options between these two ends of the continuum. Skill Builder 3.2 New Machines Decision Problem Works with SCANS competencies: Information, Resources, Systems This is the second of two decision-making exercises. The situation is that a manufacturing manager has recently installed a new machine and a new, simplified work system designed to increase efficiency. However, instead of increasing efficiency, the new system has actually reduced productivity. Using the Vroom-Yetton model, choose one of the five styles of participation given in Text Exhibit 3-7. Using participation style A, you solve the problem yourself. Using participation styles E, you are willing to accept and implement any solution that has the support of the entire group. Styles B, C, and D represent options between these two ends of the continuum. Skill Builder 3.3 Identifying Your Problem-Solving Style Works with SCANS competencies: Information, Technology This exercise presents a 20-item questionnaire analyzing how one usually feels and acts. Students should record their answers in the appropriate box, then add the total number of checks in each column. Using the total number of checks in each column, students can identify whether they are a Sensor or an Intuitor; Thinker or Feeler. Skill Builder 3.4 The $100,000 Investment Decision Works with SCANS competencies: Interpersonal Skill, Information, Technology, Resources This exercise is another group decision-making problem. A wealthy entrepreneur has donated $2 million to the school’s management department to be used in improving students’ decision-making skills. Divide the class into teams of five to seven students. Each team is given $100,000 to invest for a period of five years. At the end of that period, a member of each team will have six months to liquidate the team’s investment(s). The $100,000 principal, along with 50% of the profits, will be returned to the management department. The remaining 50% will be divided among team members. The department will cover any loss of principal up to $75,000. Each team’s assignment is as follows: 1. Following the steps of the decision-making process, reach a decision about what your investment(s) will be. Write out your reasoning for each step in the decision-making process and turn in the report to your instructor. 2. Be prepared to make a five- to ten-minute presentation to the rest of the class as to why your decision will reap the best return in five years. At the end of the exercise, class members will vote on which team seems to have made the best investment decision(s). Skill Builder 3.5 Prospect Theory Works with SCANS competencies: Interpersonal Skill, Information, Technology, Resources This exercise is another decision-making problem where students are asked to apply prospect theory with the two scenarios. Students should read the first scenario and answer the question before looking at the second scenario. This exercise will demonstrate and help students to understand framing effects, or the idea of how one frames a problem will influence what decision one arrives at. Case 3-1 When Your Personality and Job Don’t Match—Time for a Change 1. What type of MBTI decision style do you think Cynde has? Explain. Students’ answers may vary. Cynde’s style may be seen as sensing and thinking. She is obviously oriented to present realities and focus on what is factual and concrete. Yet she is analytical and solves problems with logic. Cynde is also reasonable, tough-minded, and fair. 2. Based on your answer to question 1, what are Cynde’s strengths and blind spots when making important decisions? Students’ answers may vary. Cynde’s strengths are her analytical mind and being tough-minded and determined once she makes a decision. She may experience challenges when making decisions because of her expectations of others. 3 Help Cynde with steps 3 and 4 of the decision process (e.g., see Exhibit 3-3) by gathering information from the library and the Internet, visiting and interviewing similar types of businesses locally, and so on. Using this information and what you have learned from this chapter, how would you advise Cynde to proceed? Discuss. Students’ answers may vary. This exercise offers students the opportunity for business research from multiple sources: library, Internet, and interviewing similar types of businesses. Students will see what affect, if any, the additional research will have on their recommendations to Cynde. Chapter 4 Fundamentals of Organizing Walmart’s Evolution Walmart grew from a regional chain of discount stores to the top spot on Fortune’s list of the top 500 largest U.S. companies conducting business globally under a variety of corporate brands including Walmart’s Supercenter, Sam’s Club, and Neighborhood Market. Along the way, they continuously reorganized and adapted their structure and culture to remain competitive without losing site of their mission. In 2004, however, Walmart executives realized they had a problem. Between 2% and 8% of their customers no longer shopped with them, resulting in a significant drop in same-store sales. Walmart executives knew they had to take action and the sooner the better. Walmart attacked on two fronts. First, they beefed up their public relations staff by setting up quick response teams to field calls, handle concerns, and respond to the negative stories. Next, Eduardo Castro-Wright, Vice Chairman of Walmart, set out to completely overhaul U.S. stores by de-cluttering aisles, creating cleaner, friendlier service scapes, and speeding up checkouts. Walmart aggressively transformed its stores as well as its brand. Based on consumers’ preferences and buying habits, store layouts were redesigned. The transformation was a success. Today, Walmart stores provide customers a better shopping experience with less inventory, fewer staff, but same-store sales are higher than ever. Organizing is one of the key functions of any manager or supervisor. Failure to understand the organizing function from a broader viewpoint can lead to the following problems: • Excessive violation of the unity of command principle. • Failure to develop additional departments or work groups when needed. • Unclear and improper assignment of duties and responsibilities to new employees. • Ineffective use of organizational units and inadequate development of human resources because of improper decentralization of authority. • Excessive and unhealthy conflicts between departments and between line supervisors and staff personnel. I. The Four Stages in Growth of an Organization • Usually, a business grows in four stages. ○ Stage 1 is the one-person organization ○ Stage 2 is the organization with assistants added ○ Stage 3 is the line organization ○ Stage 4 is the line-and-staff organization • Not all organizations go through all of the four stages; many skip the first stage and go directly to stage 2. A. Stage 1: The One-Person Organization • In the first stage of organizational growth, one person alone performs all the basic activities common to all manufacturing operations: administering, financing, producing, and selling. B. Stage 2: The Organization with Employees • Employees need to be hired to help carry out the primary activities of a business. • This stage is a critical one; over 50 percent of new businesses fail in their first year of operation from lack of capital, ineffective management, or both. C. Stage 3: The Line Organization • Line organization means each person in the organization has clearly defined responsibilities and reports to an immediate supervisor. • There are two advantages to having a line organization at an early stage of a business organization’s growth: ○ Quick, decisive action on problems is possible because authority is centralized. ○ Lines of responsibility and authority are clearly defined. Everyone knows what his or her job and obligations are. Thus, evasion of responsibility is minimized and accountability is maximized. D. Stage 4: The Line-and-Staff Organization • Line-and-staff organization is an organization structure in which staff positions are added to serve the basic line departments and help them accomplish the organization objectives more effectively. • Organizations need to hire several staff experts to perform some of the activities line managers do. Line organizational structure tends to overload managers. II. Departmentalization • The process of determining how activities are to be grouped is called departmentalization. There are many ways these activities may be organized. ○ However, most organizations use a functional approach at the top and other approaches at lower levels. A. Functional Departmentalization • Functional departmentalization is a form of departmentalization that groups together common functions or similar activities to form an organizational unit. • Functional departmentalization would be used at the top management level in dividing the three major business functions—production, sales, and finance. 1. Advantages of the Functional Approach • The primary advantages of the functional approach are: ○ Maintains the power and prestige of the major functions ○ Creates efficiency through the principles of specialization ○ Centralizes the organization’s expertise ○ Permits tighter top-management control ○ Minimizes costly duplications of personnel and equipment 2. Disadvantages of the functional approach • There are also many disadvantages to a functional approach. ○ Responsibility for total performance rests only at the top. ○ Training of future top managers is limited. ○ Coordination between and among functions becomes complex and more difficult as the organization grows in size and scope. ○ Individuals identify with their narrow functional responsibilities, causing subgroup loyalties, identification, and tunnel vision. B. Product or Service Departmentalization • A solution for many organizations is to shift to smaller, more natural semiautonomous mini-organizations built around specific products, each with its own functional capabilities. ○ This is known as product departmentalization, in which all the functions associated with a single product line are grouped. • Some of the advantages of product departmentalization are as follows: ○ Attention can be directed toward specific product lines or services. ○ Coordination of functions at the product division level is improved. ○ Profit responsibility can be better placed. ○ It is easier for the organization to obtain or develop several executives who have broad managerial experience in running a total entity. • Some of the disadvantages of product departmentalization are as follows: ○ It requires more personnel and material resources ○ It may cause unnecessary duplication of resources and equipment ○ Top management assumes a greater burden of establishing effective coordination and control. C. Matrix Departmentalization • Matrix departmentalization is a hybrid type of departmentalization in which personnel from several specialties are brought together to complete limited-life tasks. ○ It usually evolves from one of the other types of departmentalization. • The matrix structure is used in conjunction with other types of departmentalization. • The matrix organization provides a hierarchy that responds quickly to changes in technology. Hence, it is typically found in technically oriented organizations. 1. Advantages of the Matrix Approach • It permits open communication and coordination of activities. • The organization is more flexible and can respond rapidly to change. • Matrix organization is essential in technologically-oriented industries. 2. Disadvantages of the Matrix Approach • There can be lack of clarity and coordination in assigned roles. • Conflict may occur when the requirements of the project team results in decisions contrary to the philosophy and viewpoint of the home office. • Psychologically, employees may never feel they have “roots” while drifting from one project to another—perhaps unrelated—project. 3. Special Managerial Abilities Required • Because of the complexities of the matrix approach, managers should have special abilities to be successful. • They should be adept at teamwork and coordination and also have facilitation skills. III. Two Important Organizing Principles A. Unity of Command • The unity of command principle states that everyone in an organization should report to and be accountable to only one boss for performance of a given activity. • The supervisor should be responsible for evaluating performance, passing down orders and information, and developing employees to become better employees in the organization. • Adherence to the unity of command principle is important for five reasons: ○ It prevents duplication and conflict when orders are passed down. ○ It decreases confusion because everyone—including managers—is accountable to only one person for a given assignment. ○ It provides a basis whereby a supervisor and his or her employees learn about each other’s strengths and weaknesses. ○ It provides an opportunity for a supervisor and employees to develop supportive relationships, and realize their individual and group potential in achieving organizational objectives. ○ It promotes higher morale than is generally found in organizations that do not follow the unity of command principle. • Although employees should have only one supervisor, they may have relationships with many people. ○ If a conflict results from a staff request and a line manager’s command, the employee should have a single manager to turn to for clarification or a final decision. • The span of control principle states that there is a limit to the number of people a person can manage effectively. 1. Narrower Span of Control at the Top • The higher managers are in an organization, the fewer people they should have reporting directly to them. There are at least three reasons for relating span of control to management level: ○ Top-level managers must solve a variety of different, nonrecurring problems. Much mental concentration is required to solve such problems. ○ Middle managers must spend much of their time doing long-range planning, working with outside interest groups, and coordinating the various activities of the organization. ○ First-level managers, by contrast, tend to be concerned with more clearly defined areas of operation. They are able to supervise more people. 2. Different Approaches to a Supervisor’s Span of Control • The correct size of a supervisor’s span depends on a number of circumstances. Companies following a policy of a narrow span of control are often hampered in achieving effective results. • Numerous supervisory managers are required, resulting in high payroll costs. • An advantage of tight control is the work can be closely directed, so the company can hire relatively less skilled people. 3. Tendency toward Wider Spans of Control • Over the years, many companies tended to broaden their span of control at all levels. There are at least four reasons for this trend: ○ Higher educational attainment, management and supervisory development programs, vocational and technical training, and increased knowledge generally on the part of the labor force improved the abilities and capacities of both managers and employees. The greater the supervisor’s capacity, the more people he or she can supervise. ○ Research indicates in many situations, general supervision is more effective than close supervision. ○ New developments in management permitted businesses to broaden their span of control and supervise by results, without losing control ○ Finally—and sometimes this is the primary reason—wider spans of control save the company money. IV. Relationships between Line and Staff • Line personnel carry out the primary activities of a business, such as producing or selling products and/or services. ○ Staff personnel, on the other hand, use their expertise to assist the line people and aid top management in various areas of business activities. • Once a business reaches the fourth stage of growth and is no longer a small organization, it becomes more complex and difficult to coordinate. • A line-and-staff structure that places competent specialists in certain positions such as human resources management, legal and governmental departments, research and development, and public relations, helps eliminate confusion, duplication, and inefficiency. ○ However, a growing organization must be continually alert to pitfalls and potential trouble spots. A. Conflicts between Line and Staff • One common problem in most large organizations is excessive conflict between line and staff personnel and between different departments. • Differences in viewpoint between people and departments are natural, inevitable, and healthy, but excessive conflict disrupts an entire organization. • There are many reasons excessive conflict develops between line and staff personnel within an organization. ○ Staff personnel give direct orders to line personnel. ○ Good human relations are not practiced in dealings between line and staff personnel. ○ Overlapping authority and responsibility confuse both line and staff personnel. ○ Line people believe staff people are not knowledgeable about conditions at the operating level. ○ Staff people, because of their expertise, attempt to influence line decisions against line managers’ wishes. ○ Top management misuses staff personnel or fails to use them properly. ○ Each department views the organization from a narrow viewpoint instead of looking at the organization as a whole. B. How to Avoid Excessive Line-Staff Conflicts: Delineating Authority • Although conflict between line and staff people is not likely to be eliminated, a major way to avoid it is to ensure people clearly understand the authority/responsibility relationships between individuals and departments. 1. Advisory Authority • The primary responsibility of most staff departments is to serve and advise the line departments. ○ This type of authority is called advisory authority or the authority of ideas. ○ However, some staff people may be so zealous in their efforts to sell their ideas to line personnel they, in effect, hand out orders. 2. Line Authority • The line authority is the power to directly command or exact performance from others. ○ Individuals with this type of authority are directly responsible for the results of a certain department or group of workers. ○ The head of a staff department has line authority over the employees in his or her department. 3. Functional Authority • The third type of authority, functional authority, is usually a restricted kind of line authority. ○ It gives a staff person a type of limited line authority over a given function, such as safety or quality, regardless of where that function is found in the organization. • Another way to avoid excessive conflict between line and staff people is to have effective communication between people and between departments. V. Decentralization versus Centralization • The concept of decentralization is closely related to the concept of delegation. ○ Delegation is the process that managers allocate duties and authority downward to the people who report to them and assign responsibility for how authority is used. • Both delegation and decentralization are concerned with giving authority to someone at a lower level. ○ Decentralization is the broader concept, as the extent to which authority is delegated from one unit of the organization to another. • In a decentralized organization, middle and lower levels of management make broader, more important decisions about their units. ○ In a centralized organization, upper management makes most of the important decisions that concern all levels or units within the organization. A. Factors Affecting Decentralization • No organization is completely centralized or decentralized. Decentralization is a relative concept and depends on a number of factors, including the following: ○ Top management philosophy • Some top managers have a need for tight control. • They put together a strong central staff and want to make the most important decisions themselves. • Others believe in strong delegation and push decisions to the lowest levels of their organization. ○ History of the organization’s growth • Organizations grown by merging with other companies or acquiring them tend to be decentralized. • Those that have grown on their own tend to be centralized. ○ Geographic location(s) • Organizations spread out, with units in different cities or regions, tend to be decentralized so lower-level managers can make decisions that fit their territory or circumstances. ○ Quality of managers • If an organization has many well-qualified, well-trained managers, it will likely be decentralized. ○ Availability of controls • If top management has an effective control system, good, timely information about performance at lower levels—the organization tends to be decentralized. ○ The economy • Generally, there is a tendency toward more centralization during poor economic times, such as a recession, and more decentralization during good economic times. ○ Mergers, acquisitions, and joint ventures • Unfortunately, many mergers, acquisitions, and joint ventures fail to achieve expected synergies and positive outcomes because they do not plan and implement an early strategy to integrate different organization cultures, evaluate old ways of operating, and when appropriate, develop new ways of functioning. ○ The external business environment • Generally, in relatively certain or stable business environments, there is a tendency toward more centralization because the focus tends to be internally on improving efficiencies of operations. • In dynamic, turbulent business environments, more decentralization occurs, because rapidly responding and adjusting to environmental stimuli is most important. VI. Downsizing • Downsizing is the process of eliminating unnecessary levels of management and employees, thus reducing the number of staff personnel and supervisors. A. Benefits of Downsizing • One of the major benefits of downsizing is the tremendous cost reductions that occur almost immediately. • Turnaround time in decision making is speeded up, and communication usually improves in all directions • The organization becomes more responsive to customers and provides faster product delivery. • Without excessive interference and stifling of creativity at lower levels, line managers have more opportunity to develop and use their authority to make decisions affecting the bottom line. ○ In the final analysis, all these things translate into higher profits. B. Costs of Downsizing • Downsizing has some costs that can wreck the prospect of higher profits if the process is not accomplished ethically and efficiently. ○ Some companies downsize so rapidly and prune staff and middle management so much that they lose control. ○ Some companies are insensitive in the way they go about downsizing, telling a number of loyal, effective managers they are no longer needed. ○ Some other potential disadvantages are increased workloads, diminished chances for promotion, and threatened job security for those remaining. ○ Perhaps the greatest costs are the least known—the social costs. • Downsizing can never be painless, but thoughtful planning can minimize the pain. C. Impact on Remaining Supervisors and Managers • Remaining managers must adapt to fuzzier lines of authority and develop skills in team building. • With the increasing emphasis on quality and service management, a supervisor has to function more as a coach, a facilitator, an expediter, and a team developer. D. Ways to Get Beyond Downsizing • It is important to look on downsizing not as an end in itself but as a means to an end. • The way to get back to health is to focus on the remaining employees by developing a strategy of support for survivors and a strategic plan for growth and development for the organization. ○ However, it is important not to go back to a traditional management and organizational design based on principles of command, control, and compartmentalization. ○ This danger can be negated by developing effective work teams and using a process called reengineering. • Reengineering is a reaction to the way many organizations perform work using the traditional methods of command, control, and compartmentalization. ○ Firms that focus on division or specialization of labor with a resulting fragmentation of work end up with vertical structures built on narrow pieces of a process. ○ Reengineering can be very expensive and so firms should not use it for everything. ○ The following types of changes occur when a company successfully reengineers business processes: • Work units change from functional departments to process teams. • Jobs change from simple tasks to multidimensional work. • Roles change from controlled to empowered. • Job preparation changes from preparation to education. • Focus of compensation shifts from activity to results. • Advancement criteria change from performance to ability. VII. Contemporary Organizational Perspective A. The Inverted Pyramid • The creation of the inverted pyramid—a structure widest at the top and narrowing as it funnels down—has been attributed to Nordstrom, a successful specialty retailer. ○ Nordstrom’s structure is flat with few levels and employs a bottoms-up management philosophy. ○ The chart portrays “helping hands” symbolizing all other levels are there to help and support the sales personnel to better serve and satisfy the customer. B. The Wagon Wheel • There are usually three main parts to these innovative formats: the hub of the wheel; a series of spokes that radiate from the hub; and, finally, the outer rim. ○ Customers are at the center, called the Hub. ○ Spokes are business functions or teams. ○ Outer rim are the chief executive and the board, who are placed there to make sure everybody has at his or her fingertips everything needed to serve customers. C. Team Structures • Team structure utilizes permanent and temporary cross-functional teams to improve horizontal coordination and cooperation. ○ Teams provide speed and flexibility to meet the challenges associated with increasingly dynamic business environments. ○ Teams provide supervisors the opportunity to use the diverse talents of each member to achieve effective outcomes. D. Network Structures • Network structure sometimes referred to as a modular structure, includes a central business unit or “hub” linked to a network of external suppliers and contractors. ○ With technology, such as the Internet, companies operate efficiently and effectively with a virtual network by focusing only on those core activities they do quite well. VIII. Management Philosophy, Strategy, and Organization • In a world of rapid change and global competition, more firms are shifting to increased decentralization, team development, and empowerment. • Likert’s internal systems model groups the dimensions of a company’s human organization into three categories of variables: causal, intervening, and end result. ○ Causal variables determine the course of developments within an organization and the results achieved by the organization. ○ Intervening variables reflect the internal state and health of the organization. ○ End-result variables are dependent variables that reflect the achievements of the organization. A. Strategy and Structure: The Fit Perspective 1. Competitive Strategies • Managers in organizations use a variety of competitive strategies to be effective. • A cost leadership strategy attempts to lower costs below competitors by focusing on creating efficiencies within organizational systems. • A differentiation strategy is used to gain a competitive advantage through goods and/or services that are clearly unique or different from the competition. 2. Structure Fits Strategy • It is important for an organization’s structure to “fit” its strategy. • The cost leadership strategy attempts to lower costs below competitors by focusing on creating efficiencies within organizational systems. ○ As such, a centralized, vertical structure that focuses employee efforts internally is best suited to ensure stable operations. IX. Chapter Review The PowerPoint slides correlated with the Lecture Outline above are available on the Instructors CD-ROM and on the product support website. PowerPoint Slide 4-1 Chapter 4 Title PowerPoint Slide 4-2 Learning Objectives PowerPoint Slide 4-3 Learning Objectives (cont’d) PowerPoint Slide 4-4 Stages in the Growth of an Organization PowerPoint Slide 4-5 Advantages of Line Organization PowerPoint Slide 4-6 Departmentalization PowerPoint Slide 4-7 Functional Departmentalization at the Top Management Level (Text Exhibit 4-7) PowerPoint Slide 4-8 Advantages of Functional Departmentalization PowerPoint Slide 4-9 Disadvantages of Functional Departmentalization PowerPoint Slide 4-10 Example of Product Departmentalization (Text Exhibit 4-8) PowerPoint Slide 4-11 Advantages of Product Departmentalization PowerPoint Slide 4-12 Disadvantages of Product Departmentalization PowerPoint Slide 4-13 Example of Matrix Departmentalization (Text Exhibit 4-9) PowerPoint Slide 4-14 Disadvantages of Matrix Departmentalization PowerPoint Slide 4-15 Unity of Command Principle PowerPoint Slide 4-16 Unity of Command Principle (cont’d) PowerPoint Slide 4-17 Span of Control Principle PowerPoint Slide 4-18 Narrow, Wide, and Very Wide Spans of Control (Text Exhibit 4-11) PowerPoint Slide 4-19 Factors Contributing to a Narrow or Wide Span of Control (Text Exhibit 4-12) PowerPoint Slide 4-20 Reasons for the Tendency toward Wider Spans of Control PowerPoint Slide 4-21 Factors Contributing to a Narrow or Wide Span of Control (Text Exhibit 4-13) PowerPoint Slide 4-22 Relationships between Line and Staff PowerPoint Slide 4-23 Relationships between Line and Staff (cont’d) PowerPoint Slide 4-24 Avoiding Excessive Line-Staff Conflict PowerPoint Slide 4-25 Decentralization versus Centralization PowerPoint Slide 4-26 Factors Affecting Decentralization PowerPoint Slide 4-27 Downsizing PowerPoint Slide 4-28 Downsizing (cont’d) PowerPoint Slide 4-29 Ways to Get Beyond Downsizing PowerPoint Slide 4-30 Types of Changes Occurring After Reengineering PowerPoint Slide 4-31 Types of Changes Occurring After Reengineering (cont’d) PowerPoint Slide 4-32 Nordstorm’s Inverted Pyramid (Text Exhibit 4-14) PowerPoint Slide 4-33 The Wagon Wheel and Team Structures PowerPoint Slide 4-34 Example of a Virtual Network (Text Exhibit 4-16) PowerPoint Slide 4-35 Management Philosophy, Strategy, and Organization PowerPoint Slide 4-36 Types of Variables PowerPoint Slide 4-37 Organizational Strategy and Structure: A Fit Perspective (Text Exhibit 4-18) PowerPoint Slide 4-38 Important Terms 1. Outline the four stages of organizational growth, and relate them to an organization with which you are familiar. Students’ answers may vary. The first stage of an organization’s growth is the one-person organization, with one person performing the functions of producing, selling, and finance. As business increases, one person cannot handle all the tasks, which leads to stage two: hiring of assistants. As the business expands, additional people are hired. At some point, the manager is overseeing more people than he or she can effectively supervise. The business then enters stage three, the line organization, placing managers in charge of each function and reducing their supervisory burden. When the organization has grown so large that functional managers are spreading their efforts too thin, staff personnel are hired, and the organization enters stage four: the line-and-staff organization. 2. What two important management principles affect the successful operation of a growing organization? Do you think John Moody’s difficulties could have been avoided if he understood these principles? Discuss the advantages and disadvantages of functional, matrix, and product departmentalization. Students’ answers may vary. Unity of command and span of control are the two important principles that affect the successful operation of an organization. If John Moody understood and used these principles, he could have avoided many of his difficulties. Unity of command would have helped organize and clearly define the lines of authority, thereby eliminating much confusion. Span of control would have eased managerial pressures due to overwork and lack of planning. Advantages of the functional approach: • Maintains the power and prestige of the major functions. • Creates efficiency through the principles of specialization. • Centralizes the organization’s expertise. • Permits tighter top-management control. • Minimizes costly duplications of personnel and equipment. Disadvantages of the functional approach: • Responsibility for total performance rests only at the top. • Training of future top managers is limited. • Coordination between and among functions becomes complex and more difficult. • Individuals identify with their narrow functional responsibilities, causing subgroup loyalties, identification, and tunnel vision. Advantages of product departmentalization: • Promising product lines and services can be given special attention. • Coordination of functions at the product level is improved. • Profit responsibility can be better placed. • It is easier to develop executives with broad managerial experience. Disadvantages of product departmentalization: • It requires more personnel and material resources. • It may cause unnecessary duplication of resources. • Top management assumes the burden of coordination and control. Advantages of matrix departmentalization: • It permits open communication and coordination of activities among functional specialists. • Its flexibility enables the organization to respond rapidly to change. Disadvantages of matrix departmentalization: • Lack of clarity and coordination in assigned roles. • Conflict may occur when the requirements of the project team differ from those of the home office. • Conflict in the assignment of team members to more than one project. • Assignments are temporary. • Personal working relationships must be continually reestablished. 3. What is the relationship between levels of management and span of control? Explain the advantages and disadvantages. The higher a manager is in an organization, the fewer people should be reporting directly to him or her. There are several reasons for this. First, top managers must concentrate on the nonrecurring problems they face. Top and middle managers must spend much of their time in long-range planning, working with outside interest groups, and coordinating the various activities of the organization. They cannot afford to be tied down by the excessive burden of supervising a large number of people. First-level managers, by contrast, tend to have more clearly defined areas of operation and are able to supervise more people than higher-level managers can. 4. Distinguish between line and staff functions. Are they always easily identified in various types of business enterprises? Justify the existence of both line and staff departments. Line functions are those that carry out the primary activities of a business, such as producing or selling products and services. Staff functions involve the expertise to assist line people and aid top management in various areas of business activities. It may not always be easy to identify each function in various types of businesses, both functions are very necessary. The line and staff functions help eliminate confusion, duplication, and inefficiency, but will not solve all future problems. 5. What conflicts may arise between line and staff personnel? What reasons can you give for these problems? How does effective communication ease the conflict? There are several basic reasons for conflict between line and staff personnel. Staff personnel give direct orders to line personnel and may go beyond their area of responsibility. Good human relations are not always practiced in dealings between line and staff. For instance, staff people may resent the line people because the latter are less cooperative in helping implement staff ideas. Overlapping authority and responsibility may confuse both line and staff, because people don’t know where the authority and responsibility of one department begin or end and what authority staff people have. Line people may feel that staff people are not knowledgeable about conditions at the operating level. Staff people, because of their expertise, may attempt to influence line decisions against line managers’ wishes. Top management may misuse staff personnel or fail to use them properly. Finally, each department views the organization from a narrow viewpoint instead of looking at the organization as a whole. When this happens, members of a department fail to see that the duties of other departments are just as important as their own. Effective communication between people and between departments can help avoid excessive conflict between line and staff people. Key managers overseeing both line and staff people improve the communication process by periodically bringing line and staff people together to discuss problems that cut across departmental lines. This example may inspire lower-level managers to do the same thing with their key employees. Thus, the danger of seeing only part of the picture is minimized. 6. What are the three types of authority? Do they all exist in all four stages of functional growth? The first type of authority is advisory authority, which is the authority of staff members to serve and advise the line departments. The second type of authority is line authority, which is the power to command performance from others. The third type of authority is functional authority, which gives a staff person a limited type of authority over a given function. Line authority exists in the second stage and in succeeding stages. Functional and advisory authority exist only in the last stage, when staff personnel are added. 7. What are some factors that favor centralization or decentralization? Factors that affect centralization or decentralization are top management’s philosophy, history of the organization, geographic location, quality of managers, availability of controls, the economy, and affects of mergers, acquisitions, and joint ventures, and the external business environment. Organizations that have grown by merging tend to be decentralized; those that have grown on their own tend to be centralized. Organizations that are spread out tend to be decentralized. If an organization has many well-qualified, well-trained managers, it will more likely be decentralized. If it has few, top management will be centralized. If top management has an effective control system, it will tend more toward decentralization. Without a good control-information flow, it will tend to be more centralized. There is a tendency toward centralization in poor economic times and vice versa. Many mergers, acquisitions, and joint ventures fail because they don’t integrate different organizational structures, including issues of decentralization and centralization. In relatively certain or stable business environments, there is a tendency toward more centralization because the focus tends to be internally on improving efficiencies of operations. 8. How can a company minimize the negative effects of downsizing? The top management in the organization should plan the downsizing to balance efficiency and the human needs of the organization. When the downsizing takes effect, the supervisor will need to function more as coach, facilitator, expediter, and team developer, because downsizing puts increasing emphasis on quality management. To get back to health the company should focus on the remaining employees by developing a strategy of support for survivors and a strategic plan for growth and development for the organization. 9. What are the potential benefits and potential drawbacks of reengineering? Reengineering is a reaction to traditional methods of command, control, and compartmentalization. Firms that focus on specialization of labor end up with vertical structures in which decision making is slow. Reengineering means starting over, recreating the company with current technology. It is a fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical measures of performance such as cost, quality, service, and speed. This can be very expensive. Generally, reengineering should be saved for big challenges that really matter. 10. What contemporary organization form would be the easiest to implement in a traditional functional organization? The wagon wheel is an organization form that may be the easiest to implement due to its make up: hub (customers), spokes (business functions), and outer rim (chief executive officer and board). 11. Discuss the relationship between management philosophy, strategy, and forms of organization. If you were the owner/manager of 10 convenience stores in the same city, what type of structure would you use? If you were the owner/manager of 10 Certified Public Accountant (CPA) offices in various cities, what type of strategy and structure would you use? Students’ answers may vary. Some top managers have a need for tight control. They put together a strong central staff and want to make the most important decisions themselves. These organizations are more centralized with narrower spans of management. Others believe in strong delegation and push decisions to the lowest levels of their organization. These organizations are very flat with wide spans of management. A decentralized organization could also use the inverted pyramid or wagon wheel structure. An owner/manager of ten convenience stores in the same city could use a centralized organizational structure. The close geographical location would permit tighter control and more efficient use of resources. Employees would have fewer skills and require closer supervision. An owner/manager of ten CPA offices in various cities would find it impossible to closely control professionals in such a wide area. A decentralized structure with a wide span of management would permit local managers to participate in decision making. Skill Builder 4.1 YDL (You Deserve Luxury) Corporation Works with SCANS competencies: Information 1. What type of business strategy do you think YDL is pursuing? Explain. Students’ answers may vary. A differentiation strategy is the type of business strategy YDL is pursuing. Management uses this strategy to gain a competitive advantage through goods and/or services unique or different from the competition. 2. What form of departmentalization (organizational structure) do you believe YDL utilizes? Why? Students’ answers may vary. YDL uses functional departmentalization to divide the three major business functions: production, sales, and finance. Functional departmentalization groups common functions or similar activities to form an organizational unit. The primary advantages of the functional approach are that it maintains the power and prestige of the major functions, creates efficiency through the principles of specialization, centralizes the organization’s expertise, and permits tighter top-management control of the functions. Skill Builder 4.2 Reducing Costs in an Accounting Firm Works with SCANS competencies: Interpersonal Skill, Resources, Systems There will be numerous suggestions on how the accounting firm can reduce its costs. One point to stress, though, is that most of the cost reductions will have to come from reductions in salary expense—either eliminating people or reducing salaries. The groups should address the issue of morale, both for those terminated and those who remain. Skill Builder 4.3 Google’s Organizational Structure (Group Activity) Works with SCANS competencies: Interpersonal Skill, Information, Technology Students are assigned to conduct Internet research to uncover Google’s true form of departmentalization (organizational structure). Each team’s assignment is to prepare a brief report of its findings to present to the rest of the class. Case 4-1 John Moody is Facing Reorganization 1. Using the information about John’s company in the chapter, particularly the organizational chart in Exhibit 4-6, analyze his current situation. Consider whether John’s strategy and structure are still useful. John has reached the fourth organizational stage due to the growth of his company. Although both his strategy and structure are still useful, John may need to adjust once again due to the growth of his business and the financial challenges that exist in the country. 2. Prepare a report to include your recommends regarding what should be done to turn this situation around. You should include an organizational chart in your report reflecting your recommendations. Students’ reports should analyze the structure of line and staff while considering potential trouble spots leading to conflict. To help avoid conflict, it is important that the authority/responsibility relationships between individuals and departments be addressed. Instructor Manual for Supervisory Management: The Art of Inspiring, Empowering and Developing People Donald C. Mosley, Paul H. Pietri 9781285063003