1 ORGANIZING THE BUSINESS ENTERPRISE CHAPTER 6 Department of Business Administration Eastern Mediterranean University GaziMağusa, TRNC This slide set is

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ORGANIZING THE BUSINESS ORGANIZING THE BUSINESS ENTERPRISEENTERPRISE

CHAPTER 6CHAPTER 6

Department of Business AdministrationDepartment of Business AdministrationEastern Mediterranean UniversityEastern Mediterranean University

GaziMağusa, TRNCGaziMağusa, TRNC

This slide set is for use with Ebert and Griffin, Business Essentials. Fifth Edition. Prentice Hall, New Jersey. 2005.

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TOPICS SUMMARYTOPICS SUMMARY

What is Organizational Structure?The Building Blocks of Organizational

StructureEstablishing the Decision-Making

HierarchyBasic Forms of Organizational Structure Informal Organization

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First a few general remarks about organizations.

– A company’s strategy is supported by its organization.

– Strategic planning defines what a company will do; organization structure defines how a company’s tasks are divided and how its resources are deployed (allocated and used).

– The way an organization is structured has a definite effect on the success (or failure) of the organization.

WHAT IS ORGANIZATIONAL WHAT IS ORGANIZATIONAL STRUCTURE?STRUCTURE?

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All businesses have common structural (yapısal) and operating components, each composed (made up) of a series of jobs to be done and each with a specific overall purpose.– Think of an automobile as an example

Although all organizations have the same elements, each must develop its structure that is most appropriate for it.


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First, what is an organization?

It is a group of people whose activities and interactions are structured into goal-directed (amaca yönelik) activities.– EMU, U.N., Arçelik, Management Club,

Green Peace, etc.


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Organizational Structure (örgüt yapısı): specification of the jobs to be done within an organization and the ways in which they relate to one another.

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Determinants of Organizational Structure– organization’s purpose– its mission– its strategy– size of the organization– technology– environmental circumstances (çevre koşulları)

Many organizations change their structures continuously. Why?


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Chain of Command– Organization Chart -- diagram depicting (showing)

a company’s structure and showing employees where they fit into its operations (örgüt şeması)

it shows how employees and tasks are grouped and where the lines of communication (iletişim) and authority (yetki) flow

is a picture of where and how everyone fits in the organization

– no one structure will fit every organization– some have many layers; some have few layers


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Rector

Vice Rector

Dean Arts & Sci.Dean Bus. & Econ

Vice Rector(Ac.) Vice Rector

Dean Engineering Dean Law

Bus PA IRBF

EMU ORGANIZATION CHART (PARTIAL)

Chairpersons

Chairpersons

Accounting

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– Chain of Command

Chain of command is the reporting relationships within the company organization structure.

It is the unbroken line of authority that links each level of management to the next level (komuta zinciri). Thus we have superiors (amir) and subordinates (memur) throughout the chain of command.

who has the authority to give directions and who reports to whom


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How do we develop the organizational structure? – First we determine who will do what.

(specialization)– Secondly, we determine how people

performing certain tasks (jobs) can best be grouped together (departmentalization)

These two are the basic building blocks of all organizations.

THE BUILDING BLOCKS OF THE BUILDING BLOCKS OF ORGANIZATIONAL STRUCTUREORGANIZATIONAL STRUCTURE

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Specialization (iş bölümü ve uzmanlaşma)The process of identifying the specific jobs that need to be done and designating (selecting) the people who will perform them. It is the process of breaking down the “overall job” into several smaller jobs and assigning people to do those jobs.– When the overall job is broken down into smaller

jobs, each worker can develop expertise in his/her job.


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ADAM SMITH called specialization “division of labor”

Remember Adam Smith?For more info click image

http://www.utdallas.edu/~harpham/adam.htm


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Departmentalization

After jobs are specialized, they must be grouped into logical units. This is called departmentalization. The logical units are departments or larger units. Departmentalization has the following benefits:– control and coordination are easier– top managers can see more easily how various

units are performing cont’d..


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– departmentalization allows a firm to treat a department as a profit center - a separate unit responsible for its own costs and profits (kar merkezi)

Types of Departmentalization

Departmentalization may be done according to1. Customer 2. Product

3. Process 4. Geographic location

5. Function


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1. Customer Departmentalization

Departmentalization according to types of customers likely to buy a given product.

Example: Large store with men’s department; women’s department; toy department; consumer electronics department (TV, video, camera, CD players, walkman, etc.)


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2. Product Departmentalization

Dividing an organization according to the specific product or service being

produced.

Example: Bank

consumer loans (tüketici kredisi)

commercial loans (ticari krediler)

credit cards (kredi kartı)

time deposits (vadeli mevduat)

demand deposits (vadesiz mevduat)


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3. Process departmentalizationDepartmentalization according to

production process used to create a good or service.

Example: Tractor factoryStamping departmentDrilling departmentPainting dept.Engine assembly dept.Power train assembly dept.Final assembly dept.


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4. Geographic Departmentalization

Departmentalization according to geographical areas served by a business.

Example: Levi Strauss Company

One division for the U.S

One division for Europe

One division for the rest of the world


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5. Functional Departmentalization

Grouping people according to functions or activities.

Example: production, marketing, finance, accounting, R&D, human resources seen in many companies

– In many organizations more than one type of departmentalization is common.

(functional, geographical, and product departmentalization)


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MARK

ADVERTISINGPROMOTION SALES MAN

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Who makes which decisions in organizations? This leads us to discuss the decision-making hierarchy in organizations.

The development of the decision-making hierarchy is a three-step process:

1. assigning tasks

2. performing tasks

3. distributing authority

ESTABLISHING THE DECISION-ESTABLISHING THE DECISION-MAKING HIERARCHYMAKING HIERARCHY

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1.Assigning tasks: determining who can make decisions and specifying how they should be made. This is done by determining responsibility and authority for each person.– Responsibility is the duty to perform an

assigned task. (sorumluluk)– Authority is the power to make the decisions

necessary to complete a task. (yetki)


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An important issue in assigning tasks:

Responsibility should be coupled with authority. This is called the parity principle.

2. Performing tasks: implementing decisions that have been made.– delegation: assignment of a task, a

responsibility, or authority by a manager to a subordinate (yetkilendirme; yetki göçerme).Delegation begins when a manager assigns a task to a subordinate.


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– accountability: liability of subordinates for accomplishing tasks assigned by managers (hesap verme).

The subordinate must perform the task; if she or he does not, he/she may be reprimanded or punished (cezalandırılmak), possibly even dismissed (işten çıkarılmak).

subordinates sometimes fail to complete tasks because managers have not delegated the necessary authority. (the parity principle)


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although managers can delegate authority and responsibility, they are still accountable for the results

managers must determine the degree of authority and responsibility that their employees need to do their jobs properly

authority must be delegated only to willing peopleauthority can be delegated only by willing managers;

some managers have a hard time giving up(or delegating) authority and end up doing micromanagement -- an excessive degree of personal involvement over the daily actions of their employees


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Fear of Delegation– Reasons why some small-business managers may

have trouble delegating: the feeling that employees can never do anything as well

as you can the fear that something will go wrong if someone else takes

over a job the lack of time for long-range planning because you are

bogged down (çakılıp kalmışsınız) in day-to-day operations the sense of being in the dark about industry trends and

competitive products because of the time you devote to day-to-day operations

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– Reasons why managers in big companies do not delegate:

the fear that subordinates don’t really know how to do the job

the fear that a subordinate might “show the manager up” (foyasını meydana çıkarmak) in front of others by doing a superb (şahane) job

the desire to keep as much control as possible over how things are done

a simple lack of ability as to how to effectively delegate to others

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– What to do?should realize that managers cannot do

everything themselves if subordnates cannot do a job, maybe they need

more training so that they can assume more responsibility

managers should recognize that if a subordinate performs well, it also reflects favorably on the manager

finally, the manager might be trained in dividing a job and assigning tasks to others

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3. Distributing Authority

Delegation involves a specific relationship between managers and subordinates. Most businesses must make decisions about general patterns of authority throughout the company. This pattern may be largely centralized or decentralized.


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– Centralized Organization: organization in which most decision-making authority is held by upper level (top level) management. (merkeziyetci örgüt)

most lower level decisions must be approved by upper management before they can be implemented. Most small businesses are centralized organizations.


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– Decentralized Organization: organization in which a great deal of decision-making authority is delegated to lower levels of management. (yerinden yönetimci örgüt)

as a company gets larger, more and more decisions have to be made. This results in a more decentralized pattern.

the purpose of decentralization is to make a company more responsive to its environment by breaking it into more manageable units.

this way decisions can be made faster and better.


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Tall and Flat Organizations– Flat Organizations

characteristic of decentralized companies with relatively few layers of management and relatively wide spans of control

– Tall Organizationscharacteristic of centralized companies with

multiple layers of management and relatively narrow spans of control

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Relatively narrow Relatively narrow span of controlspan of control

Relatively wide span Relatively wide span of controlof control

Organizational Structure and Span of ControlOrganizational Structure and Span of Control

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– Span of Control : number of people supervised by one manager (yönetilen ast sayısı)

no formula or prescription exists for determining the span of control

depends upon the supervisor’s and the employees’ abilities, skills, leadership traits, and the nature of the job to be done. Generally, highly skilled employees do not require as much supervision as less skilled employees


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– Three Forms of Authority

As individuals are delegated responsibility and authority in a company, a complex web of interactions develops. These interactions may take one of three forms of authority:

1. Line Authority

2. Staff Authority

3. Committee and Team Authority

Let us see each one....


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– Line Authority

Organizational structure in which authority flows in a direct chain of command from the top of the organization to the bottom. (yürütme yetkisi; icra yetkisi)

Departments that are linked in this authority flow are called line departments. These departments are directly linked to the production and sales of a specific product.

Line departments are the “doers” and producers in a company. They are the ones responsible for getting out the product.


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– Staff Authority

Authority that is based on expertise (özel uzmanlık) and that usually involves advising line managers. (kurmay yetkisi; danışmanlık yetkisi)

Advisors and counselors who help line departments in making decisions but do not have the authority to make final decisions are called staff members

in many complex decision-making situations, staff expertise and advice is necessary

examples: legal affairs, OR specialists, industrial psychologists, Advisor to the Rector at EMU, etc.


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Rector

Vice Rector

Dean Arts & Sci.Dean Bus. & Econ

Vice Rector(Ac.) Vice Rector

Dean Engineering Dean Law

Bus PA IRBF

ILLUSTRATION OF STAFF AT EMU

Chairpersons

Chairpersons

Legal Affairs

Staff

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– Committee and Team Authority

Authority granted (given) to committees or work teams involved in a firm’s daily operations.

Many organizations grant authority to work teams and committees so that they may function more effectively.


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There are four basic forms of organizational structure:

1. Functional organization

2. Divisional organization

3. Matrix organization

4. International organization

Let us discuss each one...

BASIC FORMS OF BASIC FORMS OF ORGANIZATIONAL STRUCTUREORGANIZATIONAL STRUCTURE

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1. Functional Organization

Functional organizations are usually structured around basic business functions such as– production (operations)– marketing– finance– human resources

Functional organization groups workers according to their skills, resource use, and expertise


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2. Divisional Organization

First, what is a division? It is a department that resembles (looks like) a separate business in producing and marketing its own products.

A divisional organization relies (depends) on product departmentalization.

Corporate divisions operate as relatively autonomous (free) businesses under the larger corporate umbrella (şemsiye).


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– Divisional organization groups departments according to similarities in product, process, customer, or geography

each division is self-contained with all major functionsproblems are solved at the divisional level rather than

by top management as in the functional departmentalization

product divisions (similar products)process divisions (major steps of a production

process)customer divisions (focuses on customers or clients)geographic divisions (based on location)


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– Advantages:quick to react to changecan improve service top managers can focus on problem areas more easilymanagers gain more experience by dealing with various

functions in their divisions

– Disadvantagesduplication of resources increases costscoordination problems among divisionsdanger of narrow focus on divisional goals and neglect of

organizational goalscompetition among divisions for resources may hurt the

organization as a whole


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3. Matrix Organization

Organizational structure in which teams are formed and team members report to two or more managers. One of these managers is usually a line manager, the other one staff.– In some companies, matrix organization is

temporary, often used to complete a project. When the project ends, the matrix structure also ends.


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MATRIX ORGANIZATIONMATRIX ORGANIZATION

General Manager

Res & Dev. Process Eng Production Marketing

Project Team A

Project Team B

Project Team C

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– Matrix organizationMust be handled with careexcellent communication needed to avoid

potential problems (dual boss situation)

(çifte amir sorunu)very effective if designed and managed wellsome projects are handled by matrix

organization

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4. International Organization– Many businesses today manufacture,

purchase, and sell in the world market. – To cope (başedebilme) with this situation, some

different international organizational structures have emerged.

– These are called “international organizational structures”


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An International OrganizationAn International Organization

CEOCEO

Retail Retail Division ADivision A

Retail Retail Division BDivision B

International International DivisionDivision

Latin Latin AmericaAmerica EuropeEurope AsiaAsia

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Formal organization -- official arrangement of jobs and job relationships as shown by the organization chart.

But there is more to an organization than just formal relations because of all the different people who work in the organization. This is the informal organization.

INFORMAL ORGANIZATIONINFORMAL ORGANIZATION

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Informal organization -- network, unrelated to the organization’s formal authority structure, of everyday social interactions among employees.– Positive aspects of informal organization:

opportunity for social interactionoutlet for stress, tension, and anxiety facilitates communication and provides info for

decision-makinghelps future leaders emerge


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– Negative aspects of informal organization: rumors and false information if informal group does not share company

values, workers can act against such values resistance to management planspoor quality work and absenteeism may

decrease productivityoffice politics may put the interests of

individuals ahead of those of the organization


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Intrapreneuring ENTREPRENEUR

Organizations sometimes take steps to encourage the informal organization. WHY?– Informal organization is unavoidable

(önlenemez)– Many managers know how to use the informal

organization to reinforce (güçlendirmek; takviye etmek) the formal organization


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– Intrapreneurs -- employees who have the entrepreneurial spirit to develop innovative ideas in the organization

– Intrapreneuring -- process of creating and maintaining the innovation and flexibility of a small business environment within the confines of a large organization (kuruluş içinde girişimcilik)


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1 ORGANIZING THE BUSINESS ENTERPRISE CHAPTER 6 Department of Business Administration Eastern Mediterranean University GaziMağusa, TRNC This slide set is