RSM100Y1 Lecture Notes - J. D. Irving, Departmentalization, Profit Center

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19 Apr 2012
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CH.7 ORGANIZING THE BUSINESS ENTERPRISE
INTRO Introducing the Irving Empire
o Irving family of New Brunswick = legendary success story in Canadian business.
1. = 3rd largest fortune and is valued at ~$6 billion
2. Founded in 1882 by JD Irving… since then has been passed on down generation to
generation
3. Tensions arise at some point b/w 3 owners/brothers b/c they felt limited in the power they
had
This was resolved by restructuring the company and let the 2 main parts go their
separate ways
PROBLEMS:
o Dividing Trusts: To divide up the company, dozens of family members
who have an interest will have to agree on what the restructuring will
be.
o Shifting fortunes of the 2 main businesses (energy & forestry)
4. By 2009 oil prices had dropped dramatically and so had the Canadian dollar, so the
fortunes of the 2 main parts of the Irving empire were converging once again
WHAT IS THE ORGANIZATIONAL STRUCTURE?
o All businesses have common structural and operating components, each of which has a specific
purpose
o Organizational structure: the specification of the jobs to e done w/in a businesss and how those
jobs relate to one another
o DETERMINANTS OF ORGANIZATIONAL STRUCTURE
1. Many elements work together to determine an organization’s structure:
Imp ones: organization’s purpose, mission, and strategy. Size, technology, and
changes in env’tal circumstances
o THE CHAIN OF COMMAND
1. Organization chart: illustrates the company’s structure and show employees where they
fit into the firm’s operations
2. Chain of command: the reporting relationships w/in the company
Ex. Plant manager report directly to the vice-president of production who in turn
reports to the president
BUILDING BLOCKS OF ORGANIZATIONAL STRUCTURE
o 1st step in developing the structure of any business is twofold: (basic building blocks of all
business org.)
1. Specialization: determining who will do what
Job specialization: the process of identifying the specific jobs that need to be
done and designating the ppl who will perform there
Specialization and Growth
o In a very small org. the owner may perform every job…but as it grows
so does the need to specialize jobs sot others can perform there ex.
Mrs.Field Cookies
o Job specialization is a natural part of org’l growth.
It has certain advantages individual jobs can be performed >
efficiently, jobs=easier to learn, and easier to replace ppl who
leave the organization.
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If its carried to far and jobs become too narrowly defined, ppl
get bored, derive less satisfaction from their jobs, and often
lose sight of how their contributions fit into the overall org.
2. Departmentalization: the process of grouping jobs into logical units. determining how
ppl performing certain tasks can best be grouped together. Control and coordination are
narrowed and made easier, and top managers can see > easily how various units are
performing
Profit centre: a separate company unit responsible for its own costs and profits
Functional departmentalization: departmentalization according to fxn’s or
activities such firms have production, marketing and sales, human resource,
accounting, and finance dept’s.
Customer departmentalization: departmentalization according to they types of
customers likely to buy a given product. In gral, its > efficient and customers get
service in part b/c salespeople tend to specialize and gain expertise in their
dep’ts
Product departmentalization: dividing an org. according to the specific
product or service being created.
o Ex. 3M corp : operates diff. Divisions for Post-it brand tape flags,
Scotch-Brite scrub sponges, and the Sarns 9000 perfusion system for
open-heart surgery
Geographical departmentalization: departmentalization according to the area
of the country or world supplied
PRODUCT VS. GEOGRAPHICAL DEPARTMENTALIZATION: RIGHT
CHOICE?
o Organizing geographically was very popular but today as info
technology is reducing the impediments to cross-border communication
and global comp. is so intense that firms can’t afford to fiss an opp. To
quickly transfer product improvement from one region to another….
Firms are switching from geographical to product departmentalization
o Either approach can cause problems if taken to an extreme
Process departmentalization: departmentalization according to the area of the
country or world supplied
o Diff. bases of departmentalization have dif.. adv., larger companies
tend to adopt diff. types of departmentalization for various levels
ESTABLISHING THE DECISION-MAKING HIERARCHY
o = managers must explicitly define reporting relationships among positions so that everyone will
know who has responsibility for various decisions and operations. The dev’t of this hierarchy
generally involves a 3-step process:
1. Assigning tasks: determining who can make decisions and specifying how they should
be made
Responsibility: duty to perform an assigned task
Authority: the power to make the decisions necessary to complete task
2. Performing tasks: implementing decisions that have been made
Delegation: assignment of a task, a responsibility, or authority by a manager to
a subordinate. Involves specific relationship b/w managers and subordinates
o Fear of delegating:
Managers who have trouble delegating for variety of reasons
can remedy these problems by the following:
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