Chapter 6

Organizing the Business

Enterprise
Sr. Chapter Chapter Heading
No.No.
1. 3 Understanding the Global context of business (031012)
2. 4 Conducting Business Ethically and Responsibly (250212)
3. 6 Organizing the Business Enterprise (030312)
4. 7 Understanding Entrepreneurship and Small Business (0312)
5. 8 Managing Human Resources
6. 9 Understanding Employee Motivating, Satisfying and Leadership
7. 11 Understanding Marketing Processes and Consumer Behavior
8. 16 Managing Quality and Productivity
9. 17 Managing Information Systems and Communication Technology
10. 19 Understanding Money and Banking
11. 20 Intermediate Term and Lease Financing
Marks Distribution
50 Terminal Examination
20 Mid Term Examination
15 Quizzes
15 Final Assignment

3
 WHAT IS ORGANIZATIONAL STRUCTURE
 Determinants of Organization
 Chain of Command
 THE BUILDING BLOCKS OF ORGANIZATIONAL
STRUCTURE
 Specialization
 Departmentalization
 Customer Departmentalization
 Product Departmentalization
 Process Departmentalization
 Geographic departmentalization
 Functional Departmentalization
 ESTABLISHING THE DECISION-MAKING HIERARCHY
 Assigning Tasks: Responsibility and Authority
 Performing Tasks: Delegation and Accountability
 Fear of Delegating
 Distributing Authority: Centralization and Decentralization
 Tall and Flat organizations
 Span of Control
 Three forms of authority
 Line Authority
 Staff Authority
 Committee and Team Authority

 BASIC FORMS OF ORGANIZATIONAL STRUCTURE

 Functional Organization
 Divisional Organization

 Matrix Organization

 International Organization

 Organizational Design for 21st century

 Boundary-less organization

 The team organization

 The virtual organization

 The learning organization

Organizational Structure
 The specification of the jobs to be done
within a business and how those jobs
are related to one another

Each organization must

develop a structure that
meets its specific needs

7-6
Definitions
 Determinants of Organization
 Purpose, Mission & Strategy
 Size, technology and changes in environment
 Organizational Chart:
 Diagram depicting a company’s structure and
showing employees where they fit into its
operations
 Chain of Command:
 Reporting relationships within a company
7
THE BUILDING BLOCKS OF
ORGANIZATIONAL STRUCTURE
 Job Specialization
 The process of identifying the specific jobs
that need to be done and designing the
people who will perform them
 Departmentalization
 The process to determine how jobs should
be grouped together in logical units to
make the workplace more efficient
 BASIS OF
DEPARTMENTALIZATION
1. Customer: according to types of customers likely to buy a given
product. E.g. women and men departments; wholesale and
retail department.
2. Product: Departmentalization according to specific products
being created. Example: When a computer store has a
department for printers, for hardware, for software, etc. often
used in manufacturers.
3. Process: Departmentalization according to production processes
used to create a good or service. Sewing Department, Cutting
department etc in a garment factory
4. Geographic: Departmentalization according to areas served by
a business.
5. Functional: Departmentalization according to the function or
activities of similar groups. Example: When a company has a
different department for marketing, accounting, etc. 9
 Customer Departmentalization
 Industrial vs.
Consumer
 Youth vs. Adult
 Family vs.
Singles
 Product Departmentalization
 Consumer office
supplies vs.
business office
supplies
 Photocopiers vs.
computers
 Tax return
preparation vs.
company financial
statements

7-11
 Process Departmentalization
 Groups based
on the
manufacturing
process
 assembly
 painting
 drying
 inspection

7-12
Geographic
Departmentalization
 Western vs.
Eastern region
 Canadian vs.
American
 North America
vs. Europe

7-13
 Functional
Departmentalization
 Based on activities
performed
 accounting & finance

 marketing

 human resource

 production
The Combination of Various
Organizational Structures
 ESTABLISHING THE DECISION-
MAKING HIERARCHY

1. Assign tasks
2. Perform tasks
3. Distribute Authority

16
 Assign Tasks
Responsibility:
Duty to perform an assigned task

Authority:
Power to make the decisions necessary
to complete a task

17
 Perform Tasks
Delegation:
assignment of a task, responsibility, or
authority by a manager to a subordinate

Accountability:
Liability of subordinates for
accomplishing tasks assigned by
managers
18
 Distributing Authority
Centralized organizations
Top managers hold most
decision-making authority

Decentralized organizations
Lower level managers hold
significant decision-making
authority
 Distributing Authority
Span of Control: The number of subordinates that a manager is responsible for
supervising
Wide span- many subordinates- Flat Organization
Narrow span- very few subordinates- Tall Organization

Flat organizations: Characteristic of decentralized companies with relatively few

layers of management and relatively wide spans of control.

Tall organizations: Characteristic of centralized companies with multiple layers

of management and relatively narrow spans of control.

20
Organizational Structure and Span of Control
Forms of Authority

 Line Authority
 Line Departments

 Staff Authority
 Staff Members

 Committee and Team

Authority
 Forms of Authority
 Several different forms of authority develop in most organizations, regardless
of the organizational structure.
 Line authority: When authority flows up and down the chain of command.
Classic example: the military.
 Line departments: Departments with a direct link to the production and sales
of a specific product. Examples include: manufacturing, assembly, sales, and
distribution. Each line department is essential to an organization’s success.
Line employees are the producers in the company.
 Staff authority: When authority is based on expertise that usually involves
advising line managers. Examples include: legal, accounting, human
resources. They help line departments in making decisions. E.g. marketing
department seeks attorney advice for signing new contract.
 Staff members: Assist line departments in making decisions, but do not have
the authority to make final decisions.
 Team and committee authority: Authority granted to teams or committees
that play central roles in the firm’s daily operations. This form of authority
has recently emerged across a wide spectrum of companies.
Basic Forms of
Organizational Structure
Functional
Organization
Divisional
Organization

Matrix
Organization International
Organization
Basic Forms of
Organizational Structure
 Functional organization: Structured around basic business functions
such as marketing, operations, and finance. Examples can be found
in most small to medium businesses.
 Divisional organization: Corporate divisions operate as autonomous
businesses under the larger corporate umbrella. This structure relies
on product departmentalization. Examples include General Electric,
and The Walt Disney Company. The create product based divisions.
Each may be managed as a separate enterprise.
 Matrix organization: Teams are formed, and team members report to
two or more managers. In some firms the matrix structure is
temporary, while in other firms it is permanent. Examples include:
Martha Stewart Living, Omnimedia, and many large consulting firms.
It was created by NASA. It relies on committee and team authority.
 International organization: Approach developed in response to the
need to manufacture, purchase, and sell in global markets. Typically
an international structure evolves as international operations escalate.
 A Matrix Organization
MARTHA STEWART

Area Media Group Merchandising Group

Specialists
Radio/ Network/ Kmart Catalog Sears Specialty
Magazines Books Internet
Newspaper Cable TV line line Paint retailing

Cooking

Entertainment

Weddings

Crafts

Gardening

Home

Holidays

Children
An International Organization
CEO

Retail Retail International

Division A Division B Division

Latin
Europe Asia
America
An International Organization
 Many organizations initiate international
expansion with a small team of
specialists, evolve into a separate
division as shown in the slide, and
ultimately (if they experience success in
foreign markets) integrate international
operations into their standard business
units.
The Future of
Organizational Structure

 Boundary-less Organizations

 Team Organizations

 Virtual Organizations

 Learning Organizations
The Future of
Organizational Structure
 Organizational structure continues to change as organizations seek new
ways to compete effectively within a rapidly changing business
environment. Emerging forms include (these characteristics):
1. Boundary-less: Organizations in which traditional boundaries and
structures are minimized or eliminated. Example: Wal-Mart has tied its
key suppliers into its information system for seamless\faultless
inventory management.
2. Team: Organizations that rely almost exclusively on project-type
teams. Examples: Xerox and Apple are moving in this direction.
3. Virtual: Organizations that have little or no formal structure, relying
heavily on temporary workers, leased facilities, and outsourced services.
Examples: Global Research Consortium operates this way, and
University of Phoenix is moving in this direction.
4. Learning: Organizations that strive to integrate continuous
improvement with continuous employee learning and development.
Example: Shell Oil Company.
5. Learning org. works to facilitate the lifelong learning and personal
development to all employees and continuous respond to change.
The Informal Organization
A Powerful Dynamic

 Informal Groups
 The grapevine\gossip
 Intrapreneuring
The Informal Organization
A Powerful Dynamic
 The informal organization is the network of everyday
social interactions among employees, which do not
follow formal lines of communication. The informal
organization can be as powerful—if not more so—than
the formal organization.
 Informal groups: Groups of people who decide to
interact among themselves. Their impact on the
organization can be positive, negative, or neutral.
 The grapevine\gossip: Informal communication
network that runs through the organization. You need
to have open channels of communication and
responding vigorously in order to eliminate its level.
The Informal Organization
A Powerful Dynamic
Intrapreneuring: Harnessing\tie together
the energy of the informal organization to
improve productivity by creating the
innovation and flexibility of a small-
business environment within the confines
of a large organization. Compaq,
Rubbermaid, 3M, and Xerox are examples
of companies that support intrapreneuring.