Adapting Organizations to Today s Markets

ANNE MULCAHY Xerox Started as a field sales representative and moved up through Xerox. When she was chosen as the new CEO, Xerox was in bad shape. She cut the debt and built up cash reserves. Follows her motto - Work hard. Measure the results. Tell the truth. Profile 8-2

REORGANIZATION is for EVERYONE Everyone s Organizing LG1 Many companies are reorganizing, especially those in decline. Including: - Auto makers - Homebuilders - Banks Adjusting to changing markets is normal in capitalist economies. Companies must go back to basic organizational principles and firm up the foundation. 8-3

GE LOOKS for MORE PROFITS (Reaching Beyond Our Borders) General Electric (GE) must restructure due to the financial crisis. Some international units, like the GE Money unit, may need to be sold to cut costs. Reorganized from six business segments to four. 1. Technology Infrastructure 2. Energy Infrastructure 3. GE Capital 4. NBC Universal 8-4

STRUCTURING an ORGANIZATION Building an Organization from the Bottom Up LG1 Create a division of labor Set up teams or departments Allocate resources Assign tasks Establish procedures Adjust to new realities 8-5

SAFETY vs. PROFIT (Making Ethical Decisions) You own a lawn-mowing business and are aware of the hazards in the job. But, you ve seen other companies save money by eliminating safety equipment. You d also like to make more money. What do you do? Save money with less safety precautions? What are the consequences? 8-6

THE CHANGING ORGANIZATION The Changing Organization Often change in organizations is due to evolving business environments: - More global competition - Declining economy - Faster technological change - Pressure to protect the environment LG2 Customer expectations have also changed -- Consumers today want high-quality products with fast, friendly service and all at low cost. 8-7

PRODUCTION CHANGED ORGANZIATION DESIGN The Development of Organization Design LG2 Mass production of goods led to complexities in organizing businesses. Economies of Scale -- Companies can reduce their production costs by purchasing raw materials in bulk. The average cost of goods decrease as production levels rise. 8-8

FAYOL S PRINCIPLES Fayol s Principles of Organization LG2 Unity of command Hierarchy of authority Division of labor Subordination of individual interests to the general interest Authority Degree of centralization Clear communication channels Order Equity Esprit de corps 8-9

ORGANIZATIONS BASED on FAYOL S PRINCIPLES Fayol s Principles of Organization LG2 Organizations in which employees have no more than one boss; lines of authority are clear. Rigid organizations that often don t respond to customers quickly. 8-10

WEBER S PRINCIPLES Employees just need to do what they re told. In addition to Fayol s principles, Weber emphasized: - Job descriptions. - Written rules, decision guidelines and detailed records. - Consistent procedures, regulations and policies. - Staffing and promotion based on qualifications. Max Weber and Organizational Theory LG2 8-11

HIERARCHIES and COMMAND Turning Principles into Organization Design LG2 When following Fayol and Weber, managers control workers. Hierarchy -- A system in which one person is at the top of an organization and there is a ranked or sequential ordering from the top down. Chain of Command -- The line of authority that moves from the top of the hierarchy to the lowest level. 8-12

TYPICAL ORGANIZATION CHART Turning Principles into Organization Design LG2 8-13

BUREAUCRATIC ORGANIZATIONS Turning Principles into Organization Design LG2 Bureaucracy -- An organization with many layers of managers who set rules and regulations and oversee all decisions. It can take weeks or months to have information passed down to lower-level employees. Bureaucracies can annoy customers. 8-14

CENTRALIZATION or DECENTRALIZATION? Choosing Centralized or Decentralized Authority LG3 Centralized Authority -- When decision-making is concentrated at the top level of management. Decentralized Authority -- When decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters. 8-15

SPAN of CONTROL Span of Control -- The optimal number of subordinates a manager supervises or should supervise. When work is standardized, broad spans of control are possible. Choosing the Appropriate Span of Control Appropriate span narrows at higher levels of the organization. The trend today is to reduce middle managers and hire better low-level employees. LG3 8-16

ORGANIZATIONAL STRUCTURES Structures determine the way the company responds to employee and customer needs. Choosing Tall versus Flat Organization Structures LG3 Tall Organization Structures -- An organizational structure in which the organization chart would be tall because of the various levels of management. Flat Organization Structures -- An organizational structure that has few layers of management and a broad span of control. 8-17

FLAT ORGANIZATIONAL STRUCTURE Choosing Tall versus Flat Organization Structures LG3 8-18

DEPARTMENTALIZATION Weighing the Advantages and Disadvantages of Departmentalization LG3 Departmentalization -- Divides organizations into separate units. Workers are grouped by skills and expertise to specialize their skills. 8-19

ADVANTAGES of DEPARTMENTALIZATION Weighing the Advantages and Disadvantages of Departmentalization LG3 Employees develop skills and progress within a department as they master skills. The company can achieve economies of scale. Employees can coordinate work within the function and top management can easily direct activities. 8-20

DISADVANTAGES of DEPARTMENTALIZATION Weighing the Advantages and Disadvantages of Departmentalization LG3 Departments may not communicate well. Employees may identify with their department s goals rather than the organization s. The company s response to external changes may be slow. People may not be trained to take different managerial responsibilities, instead they become specialists. Department members may engage in groupthink and may need outside input. 8-21

WAYS to DEPARTMENTALIZE Looking at Alternate Ways to Departmentalize LG3 8-22

WAYS to DEPARTMENTALIZE Looking at Alternate Ways to Departmentalize LG3 8-23

PROGRESS ASSESSMENT Progress Assessment Why are organizations becoming flatter? What are some reasons for having a narrow span of control in an organization? What are the advantages and disadvantages of departmentalization? What are the various ways a firm can departmentalize? 8-24

FOUR WAYS to STRUCTURE an ORGANIZATION Organization Models LG4 1. Line Organizations 2. Line-and-Staff Organizations 3. Matrix-Style Organizations 4. Cross-Functional Self-Managed Teams 8-25

LINE ORGANIZATIONS Line Organizations LG4 Line Organization -- Has direct two-way lines of responsibility, authority and communication running from the top to the bottom. Everyone reports to one supervisor. There are no specialists, legal, accounting, human resources or information technology departments. Line managers issue orders, enforce discipline and adjust the organization to changes. 8-26

LINE PERSONNEL Line-and-Staff Organizations LG4 Line Personnel -- Workers responsible for directly achieving organizational goals, and include production, distribution and marketing employees. Line personnel have authority to make policy decisions. 8-27

STAFF PERSONNEL Line-and-Staff Organizations LG4 Staff Personnel -- Employees who advise and assist line personnel in meeting their goals, and include marketing research, legal advising, IT and human resource employees. 8-28

SAMPLE LINE-and-STAFF ORGANIZATION Line-and-Staff Organizations LG4 8-29

MATRIX ORGANIZATIONS Matrix-Style Organizations LG4 Matrix Organization -- Specialists from different parts of the organization work together temporarily on specific projects, but still remain part of a line-and-staff structure. Emphasis is on product development, creativity, special projects, communication and teamwork. 8-30

SAMPLE MATRIX ORGANIZATION Matrix-Style Organizations LG4 8-31

ADVANTAGES of the MATRIX STYLE Matrix-Style Organizations LG4 Managers have flexibility in assigning people to projects. Interorganizational cooperation and teamwork is encouraged. Creative solutions to product development problems are produced. Efficient use of organizational resources. 8-32

DISADVANTAGES of the MATRIX STYLE Matrix-Style Organizations LG4 It s costly and complex. Employees may be confused about where their loyalty belongs. Good interpersonal skills and cooperative employees are a must. It s a temporary solution to a possible long-term problem. Teams are not permanent. 8-33

CROSS-FUNCTIONAL SELF-MANAGED TEAMS Cross-Functional Self-Managed Teams LG4 A way to fix the problem of matrix-style teams is to establish long-term teams. Empower teams to work closely with suppliers, customers and others to figure out how to create better products. Cross-Functional Self-Managed Teams -- Groups of employees from different departments who work together on a long-term basis. 8-34

GOING BEYOND ORGANIZATIONAL BOUNDARIES Going Beyond Organizational Boundaries LG4 Cross-functional teams work best when the voice of the customer is heard. Teams that include customers, suppliers and distributors goes beyond organizational boundaries. Government coordinators may assist in sharing market information beyond national boundaries. 8-35

BUILDING SUCCESSFUL TEAMS Important Conditions for Small Teams Going Beyond Organizational Boundaries LG4 Clear purpose Clear goals Correct skills Mutual accountability Shift roles when appropriate Source: CIO Magazine, www.cio.com,. 8-36

PROGRESS ASSESSMENT Progress Assessment What s the difference between line and staff personnel? What management principle does a matrix-style organization challenge? What s the main difference between a matrixstyle organization s structure and the use of cross-functional teams? 8-37

REAL TIME BUSINESS Transparency and Virtual Organizations LG5 Most companies are no longer self-sufficient; they re part of a global business network. Real Time -- The present moment or actual time in which something takes place. 8-38

TRANSPARENCY and VIRTUAL CORPORATIONS Transparency and Virtual Organizations LG5 Transparency -- When a company is so open to other companies that electronic information is shared as if the companies were one. Virtual Corporation -- A temporary networked organization made up of replaceable firms that join and leave as needed. 8-39

A VIRTUAL CORPORATION Transparency and Virtual Organizations LG5 8-40

BENEFITS and CONCERNS of HEALTHCARE OUTSOURCING Transparency and Virtual Organizations LG5 Benefits Provides enough staff to operate the facility Cost savings Concerns Lower employee morale Liability Should patients be informed Confidentiality and security Source: Healthcare Financial Management. 8-41

WHICH JOBS will be OUTSOURCED NEXT? Transparency and Virtual Organizations LG5 Source: USA Today. 8-42

BENCHMARKING and CORE COMPETENCIES Benchmarking and Core Competencies LG5 Benchmarking -- Compares an organization s practices, processes and products against the world s best. Core Competencies -- The functions an organization can do as well as or better than any other organization in the world. If a company can t match a competitor, they may try to outsource. 8-43

ADAPTING to MARKET CHANGES Adapting to Change LG5 Change isn t easy. Employees like to do things the way they always have. Get rid of old, inefficient facilities and equipment. Use the Internet to get to know your customers and sell directly to them. 8-44

KEEP in TOUCH Amazon and its Customer Database Adapting to Change Amazon.com uses information stored in databases to reach out to customers. The company emails customers letting them know about CDs, DVDs or books they might like based on past purchases. Have you ever received an email like this from Amazon or another company? LG5 What benefits would a database of personal information, like past purchases, provide Amazon? Do you think these databases are helpful for both companies and consumers or are they an invasion of privacy? 8-45

Restructuring for Empowerment Restructuring -- Redesigning an organization so it can more effectively and efficiently serve its customers. Inverted Organization -- An organization that has contact people at the top and the CEO at the bottom of the organizational chart. The manager s job is to assist and support frontline workers, not boss them. RESTRUCTURING LG5 8-46

TRADITIONAL and INVERTED ORGANIZATIONS Restructuring for Empowerment LG5 8-47

ORGANIZATIONAL CULTURE Creating a Change-Oriented Organizational Culture LG6 Organizational or Corporate Culture -- The widely shared values within an organization that foster unity and cooperation to achieve common goals Some of the best organizational cultures emphasize service. Culture is shown in stories, traditions and myths. 8-48

FORMAL ORGANIZATION Managing the Informal Organization LG6 Formal Organization -- Details lines of responsibility, authority and position. The formal system is often slow and bureaucratic but it helps guide the lines of authority. No organization can be effective without formal and informal organization. 8-49

INFORMAL ORGANIZATION Managing the Informal Organization LG6 Informal Organization -- The system of relationships that develop spontaneously as employees meet and form relationships. Informal organization helps foster camaraderie and teamwork among employees. 8-50

LIMITATIONS of INFORMAL ORGANIZATIONS Managing the Informal Organization LG6 The informal system is too unstructured and emotional on its own. Informal organization may also be powerful in resisting management directives. 8-51

GROUP NORMS Examples of Informal Group Norms Managing the Informal Organization LG6 Do your job but don t produce more than the rest of your group. Don t tell off-color jokes or use profanity. Everyone is to be clean and organized at the workstation. Respect and help your fellow group members. Drinking is done off the job NEVER at work. Source: CIO Magazine, www.cio.com,. 8-52

KEEPING THAT SMALL-COMPANY FEELING (Spotlight on Small Business) Informal networks are easier to maintain in small businesses. Communication among large corporate units isn t managed as well, inhibiting innovation. Large corporations could form crossdepartmental sports teams or sponsor crossdepartmental parties to get ideas flowing in more informal settings. 8-53

PROGRESS ASSESSMENT Progress Assessment What s an inverted organization? Why do organizations outsource functions? What s organizational culture? 8-54