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RSM100Y1 (431)
Chapter 7


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Rotman Commerce
Marcel Danesi

CHAPTER 7: ORGANIZING THE BUSINESS ENTERPRISE WHAT IS ORGANIZATIONAL STRUCTURE? - Business is like an automobile Automobile has many components, having distinct purposes but also work in harmony with others All business have common structural and operating components, each of which has a specific purpose Each component must fulfill its own purpose while fitting in with the others How there components look and fit together varies from company to company - Organizational structure: specification of the jobs to be done within a business and how those jobs relate to one another - Every institution must develop the most appropriate structure for its own unique situation Determinants of Organizational Structure - Ideally, managers carefully access a variety of important factors as they plan for and then create a structure that allow their organization to function efficiently - Many elements work together to determine an organizations structure - Chief among these are the organizations purpose, mission, and strategy - Size, technology, and changes in environmental circumstances also affect structure A large manufacturer operating in a strongly competitive environment requires different structure than a local barbershop or video store Most organizations change their structures almost continually - E.g. Ford Motor: it has gone dozens of major structural changes. In 2001, still more changes are announced that were intended to boost the firms flagging bottom line and stem a decline in product quality The Chain of Command - Most businesses prepare organization charts that illustrate the companys structure and show employees where they fit into the firms operations - Organization chart: a physical depiction of the companys structure showing employee titles and their relationship to one another - Each box represents a job within the company; the solid lines that connect the boxes define the chain of command, or the reporting relationships within the company - Chain of command: reporting relationships within a business, the flow of decision making power in a firm When chain of command is not clear, many different kinds of problems can result THE BUILDING BLOCKS OF ORGANIZATIONAL STRUCTURE - The first step in developing the structure of any business, large or small, is twofold: 1. Specialization: determining who will do what 2. Departmentalization: determining how people performing certain tasks can best be grouped toegether - These two tasks are the basic building blocks of all business organization Specialization - Job specialization: the process of identifying the specific jobs that need to be done and designating the people who will perform them - All organizations have only one major job- e.g. making a profit by manufacturing and selling mens shirts CHAPTER 7: ORGANIZING THE BUSINESS ENTERPRISE - This job is broken into smaller components each component is assigned to an individual Specialization and Growth - In a very small organization, the owner may perform every job - As the firm grows so does the need to specialize jobs so that others can perform them - Job specialization is a natural part of organizational growth - Advantages: individual jobs can be performed more efficiently, the jobs are easier to learn, and it is easier to replace people who leave the organization - If job specialization is carried too far and jobs become too narrowly defined, people get bored, derive less satisfaction from their jobs, and often lose sight of how their contribution fit into the overall organization Departmentalization - Departmentalization: the process of grouping jobs into local units - Departmentalized companies benefit from the division of activities Control and coordination are narrowed and made easier Top managers can see more easily how various units are performing - Departmentalization allows the firm to treat a department as a profit centre - Profit centre: a separate company unit responsible for its own costs and profits - Managers group jobs logically, according to some common thread or purpose - Departmentalization may occur along functional, customer, product, geographic, or process lines Functional Departmentalization - Functional departmentalization: departmentalization according to functions or activities - Production, marketing and sales, human resource, and accounting and finance departments - Departments may be further subdivided Customer Departmentalization - Customer departmentalization: departmentalization according to the types of customers likely to buy a given product - Makes shopping easier by providing identifiable store segments - E.g. HMV: divided into departments; a classical music, R&B, pop department targets a specific customer category - Stores can also group products in locations designated for deliveries, special sales, and other purposes - In general, when it is departmentalized the store is more efficient and customers get better service Product Departmentalization - Both manufacturers and service providers often opt for product departmentalization - Product departmentalization: departmentalization according to the products being created or sold - E.g. bank may handle consumer loans in one department and commercial loans in another; department stores Geographic Departmentalization - Some firms may be divided according to the area of the country, or even the world - Geographic departmentalization: departmentalization according to the area of the country or world supplied - E.g. The Personal Services division of Montreal Trust: organized around four regionsCHAPTER 7: ORGANIZING THE BUSINESS ENTERPRISE - Ensures quick, responsive reaction to the needs of the companys customers in certain geographic areas - Grew in popularity as globalization occurred and firms expanded across national borders - Two trends making this structure less popular: information technology and strong global competition - Many firms are therefore switching from geographic product departmentalization Process Departmentalization - Process departmentalization: departmentalization according to the production process used to create a good or service - Each process requires different equipment and worker skills - Different forms of departmentalization have different advantages, larger companies tend to adopt different types of departmentalization for various levels ESTABLISHING THE DECISION-MAKING HIERARCHY - After jobs have been specialized and grouped into manageable departments, the next step in organizing is to establish the decision-making hierarchy - Managers must explicitly define reporting
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