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Chapter 8

Chapter 8- Organizing.docx

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Dave Swanston

st November 1 , 2013 Chapter 8- Organizing Primary Management Decision- How to organize work  How do we divide tasks into jobs?  How do we coordinate the work and link jobs?   Division and integration o More division there is, the more challenge there is with integration (building different parts of a house example) How managers can shape the architecture of their organization to successfully implement firm’s strategy Organization Architecture  Organization Architecture- The totality of a firm’s organization, including formal organization structure, control systems, incentive systems, organizational culture, and people (center around people)  Organization Structure- has three things: 1. The location of decisions making responsibilities in the firm 2. The formal division of the organization into subunits 3. The establishment of integrating mechanisms to coordinate the activities of subunits  Controls- Metrics used to measure the performance of subunits and to judge how well managers are running those subunits  Incentives- Devices used to encourage desired employee behaviour  Organizational Culture- Values and assumptions that are shared among the employees of an organization  People- The employees of an organization; the strategy used to recruit, compensate, motivate, and retain those individuals; and the type of people they are in terms of their skills, values, and orientation  Challenge for managers: Design an organization architecture that makes sense for the market in which an enterprise competes and the basic strategies positioning it is trying to achieve Designing Structure: Vertical Differentiation  Organization structure can be thought of in terms of three dimensions: 1. Vertical Differentiation- The location of decision making responsibilities within a structure (centralization/decentralization) and in the number of layers in a hierarchy (tall/flat) 2. Horizontal Differentiation- The formal division of the organization into subunits 3. Integrating Mechanisms- Mechanisms for coordinating subunits Centralization and Decentralization  Centralization- The concentration of decision making authority at a high level in a management hierarchy ; arguments for centralization:  Facilitates coordination  Ensures that decisions are consistent with organizational objectives; way of controlling the organization November 1 , 2013  Avoids duplication of activities by various subunits within the organization, attain economics of scale and lower costs  Gives top level managers the means to bring about needed major organizational changes  Decentralization- Vesting decision making authority in lower level managers or other employees; arguments for decentralization:  Top management can become overburdened when decision making authority is centralized ; decentralization gives top managers time to focus on critical issues by delegating more routine issues to lower level managers and reducing the amount of information top managers have to process, making them less vulnerable to cognitive biases  Motivational research favours decentralization; giving employees more responsibility for their jobs which increases productivity and reduces costs  Greater flexibility; more rapid response to environmental changes  Result in better decisions; decisions are made closer to individuals who have better information than managers  Increases control; hold people accountable and have greater degree of control o Autonomous Subunit- A unit that has all the resources and decision making power required to run its operation daily o Decentralization of decisions to a subunit  Increases responsibility  increases accountability  enhances control  Choice between centralization and decentralization  Firm’s strategy: o Centralization decisions: financial expenditures, financial objectives, legal issues o Decentralization decisions: operating decisions such as production, marketing  Economics of scale: o Centralization: purchasing and manufacturing decisions to eliminate duplication and realize scale economies o Decentralization: Sales decisions since economies of scale are less considerate  Local Adaptation: o Decentralization: Substantial differences between conditions in local markets, marketing, and sales decisions  Environments with high uncertainty and rapid change: o Centralization: slows down decision making; competitive disadvantage (good for stable and predictable environments such as banking industry) o Decentralization: favoured since it is more flexible Tall Versus Flat Hierarchies  Tall Hierarchies- Organizations with many layers of management; to avoid being stretched too thin and losing control; bigger the organization, the more levels it has  Flat Hierarchies- Organizations with few layers of management  Span of Control  Span of Control- The number of direct reports a manager has which depends on: 1. The nature of the work being supervised 2. How visible the performance of subordinates is 3. Extent of decentralization within the organization o Good managers can effectively handle 20 direct reports o Number of levels in a hierarchy: st November 1 , 2013  Problems in tall hierarchies that may result in lower organizational efficiency and effectiveness  Distorted information o Information can get accidently distorted as it passes through layers in hierarchy; decisions may be based on inaccurate information and poor performance may result  Deliberate Distortion by midlevel managers  Influence Costs- The loss of efficiency caused by deliberate information distortion for personal gain within an organization  Expensive  Salaries and benefits of multiple layers of midlevel managers can add u p to significant overhead which increases cost structure of firm and puts it at competitive disadvantage  Inherent Inertia  More centres of power and influence= more voices arguing against change = slower to change  Delayering: Reducing the size of a hierarchy
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