Reading: Lesson 8 - Developing Effective Organizations

2.8.A - Developing Effective Organizations

1. TYPES OF ORGANIZATIONAL STRUCTURES

1. A business’s organizational structure identifies the relationships among departments and personnel and indicates the lines of communication and decision making. Two primary types of organizational structures are (1) line and (2) line- and-staff organizations. Newer departmental structures in companies are matrix and team organizations.
   
2. As organizations grow, multiple employees might be grouped based on the type of activity where value is created for the company. This concept is referred to as departmentalization, where senior managers make conscious decisions on how to group employees that serve a similar need for the company. A manufacturer of food products, for instance, might decide to create departments based on one or more organizational needs.
   
3. Functional departmentalization is the type most commonly encountered in the workplace and is reflected in line or line-and-staff organization models. When you hear an employee speaking about working in Human Resources, Information Technology, or another area within a company, it is an example of functional departmentalization. Customer departmentalization, which also fol- lows the line or line-and-staff organization models, groups employees to serve distinct customer segments. A company that has a North American sales division and European sales division is one such example. A company that serves individual consumers and large corporations likely also has departments based on those customer segments.
   

2. LINE ORGANIZATION

1. In a line organization, all authority and responsibility can be traced in a direct line from the top executive down to the lowest employee level in the organization. A line organization is shown in the Figure below (sales is the only area for which the complete organization is shown). This type of organization is commonly used within functional departmentalization (where employees are grouped based on tasks performed, such as accounting or human resources) and customer departmentalization (where employees are grouped based on the type of customer served). The lines connecting the individual boxes indicate the lines of authority. The lines show, for example, that the president has authority over the sales manager, the sales manager has authority over the assistant sales manager, the assistant sales manager has authority over the branch managers, and the branch managers have authority over the sales representatives. In addition, the lines describe how formal communications are expected to flow up and down the organization. 
   

   
   

2. In a line organization, the top executive has direct control over all units of the business, but responsibility, authority, and accountability are passed along from one person to another, down to the lowest level. Under this form of organization, each person is responsible to only one manager, who, in turn, is responsible to someone else. This type of organization can be very efficient, because new plans and ideas can be put into effect immediately in one area of the business without involvement from other areas. However, it often leads to many layers of management and isolation or lack of communication between departments and divisions. There is no direct way that managers of different departments not in the same line of authority can communicate and work together. This type of isolation and focus on only one part of the organization is known as the silo effect.
   

3. LINE-AND-STAFF ORGANIZATION

1. Large and complex businesses need a great deal of expertise to operate well. Managers have greater difficulty mastering all of the knowledge and skills they need in every area of responsibility. In the line-and-staff organization, managers have direct control over the units and employees they supervise but have access to staff specialists for assistance. Specifically, the line-and-staff organization adds staff specialists to a line organization. It is designed to solve the problem of complexity and still retain the advantages of direct and definite lines of authority. Staff specialists give advice and assistance when needed. They have no authority over line personnel to require them to perform any task. They are there to help with specialized expertise. Thus, line personnel are still responsible to only one manager.
   
2. The line-and-staff organization, in the Figure below, is like the line organization except for the addition of the advertising specialist and the marketing research specialist. Their responsibility is to give specialized advice and assistance to the sales organization. This relationship is indicated in the organization chart by broken lines. Other examples of staff positions in some organizations are legal, technology planning, and human resources specialists. 
   

   
   

4. MATRIX ORGANIZATION

1. A newer, more flexible structure is the matrix organization, sometimes called a project organization. A matrix organization organizes employees into temporary work teams to complete specific projects while working in the same functional area. For instance, a company engineer might be assigned to work as part of a team to lend his or her expertise to the team’s project while still reporting to the vice president of engineering. Employees report to a project manager with authority and responsibility for the project. When a new project must be done, employees with the needed skills are assigned to work on the project team. They work for that manager until the project is finished. Then they are assigned to a new project and another project manager. Work assignments and relationships for individual projects within a matrix organization are clear but temporary.
   
2. In the matrix organization, there is no permanent organizational structure in which an employee continues to report to the same manager across a limited number of projects. It is difficult to develop an organizational chart for this type of organization because it changes regularly. Typically, the company prepares an organization chart for each project, so that employees know the current project structure and the management and employee relationships. The company prepares a new chart when that project ends and a new one begins. The Figure below illustrates a matrix organization in which an employee from each functional area is assigned to a product team. 
   

   
   

3. The matrix organization is used successfully in research firms, advertising agencies, and construction companies, but it is being considered by other types of businesses because it provides flexibility and allows for rapid change. This structure uses the specific skills of managers and employees as effectively as possible by bringing together people with the right skills for each project. When employees are given new project assignments, managers must be careful to define authority and responsibility so as not to violate unity of command. They also need to encourage good working relationships with new project members.
   

5. TEAM ORGANIZATION

1. The newest type of organization structure is known as team organization. A team organization divides employees into permanent work teams. The teams have responsibility and authority for important business activities with limited management control over their daily work. Teams often have team leaders who are likely to be experienced employees rather than managers. Team leaders replace the traditional position of supervisor and act as facilitators more than as traditional managers. Team leaders help their teams identify problems and work with them to solve the problems as a group. Team members report to the team leader, and the team leader makes some management decisions for the team. A full-time manager is responsible for several teams and meets with team leaders for planning, progress reports, and problem solving.
   
2. Sometimes teams are organized without a permanently designated team leader. These are self-directed work teams, in which team members together are responsible for the work assigned to the team. Self-directed work teams have a manager to whom they can turn with unusual or very difficult problems, but most of the time they work together to establish goals and to plan and organize their work. Often members take turns as team leader or facilitator. A self-directed team has full authority over planning, performing, and evaluating its work. For ideas and assistance, the team may talk to other teams or draw on the support of specialists available to work with all teams in the organization. In addition, the team is expected to talk to suppliers and customers from inside or outside the business to get their input and feedback.
   
3. In self-directed work teams, the team decides who will do which types of work and how they will do it. Each worker must be able to perform the tasks of other team members to cover for absent members or additional workloads. Teams can hire, train, and even remove team members; evaluate individual and team performance; and handle most of the traditional management tasks. The role of the manager is to serve as the team’s consultant and to concentrate on higher-level management tasks. Some differences between self-directed work teams and traditional work teams are shown in the Figure below. 
   

   
   

4. Companies that have developed effective team structures have a better record of keeping customers happy, reducing absenteeism, reducing turnover, and keeping motivation high. Teams require certain ingredients for success. Managers must support the team concept and assist the teams as needed. Team members must become competent in three areas:
   
   1. Technical job skills
   
   2. Interpersonal skills, such as writing, speaking, discussing, and negotiating
   
   3. Administrative skills, such as leading meetings, thinking analytically, and maintaining records
   
   Teams need top management support as well as skills in these three areas to do well. New teams must have both time and support to be able to develop to their full potential.