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Chapter 7

CHAPTER 7-What is Organizational Structure


Department
Rotman Commerce
Course Code
RSM100Y1
Professor
Michael Szlachta
Chapter
7

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CHAPTER 7
What is Organizational Structure?
- all components of an organization have distinct purposes but they must work in harmony
together
- How components look and fit together varies from company to company
- Organizational structure is the specification of the jobs to be done within a business and how
those jobs relate to one another
DETERMINANTS OF ORGANIZATIONAL STRUCTURE
- managers should assess different factors as they plan for and create a structure that will allow
their organization to function efficiently
- Elements that work together to determine an organizations structure are purpose, mission and
strategy. For example, a firm that grows quickly needs a structure that will contribute to flexibility
and growth
- Size, technology and changes in the environment affect structure (ie manufacturer vs barber
shop)
- Structures are not stable - they change over time
THE CHAIN OF COMMAND
- an organization chart is a depiction of the companys structure showing employee titles and their
relationship to one another
- The organization chart illustrates the companys structure and the employees relative position
within that structure and within the firms operations
- The chain of command (who reports to whom) shows relationships within a business. It shows
the flow of decision making power in a firm
The building blocks of organizational structure
- in developing the structure of any business, first determine specialization (who does what) and
departmentalization (how people performing certain tasks can be best grouped together)
SPECIALIZATION: job specialization is the process of identifying the specific jobs that need to be
done and designating the people who will perform them. Most organizations have one major job
that gets broken down into smaller jobs so that the big job gets done.
Specialization and growth: as a firm grows, the need to specialize jobs (for others to perform
them) grows as well. The advantages of job specialization are that individual jobs are performed
more efficiently, the jobs are easier to learn and it is easier to replace people who leave the
organization. If job specialization becomes too narrow (ie one person to do only photocopying),
people arent happy and they loose satisfaction from their jobs
DEPARTMENTALIZATION: This is the process of grouping jobs into logical units. Companies
that are departmentalized benefit from the division of activities. It becomes easier to control the
firm and top managers see how various units are performing. Departmentalization allows the firm
to treat a department as a profit center - as a separate company unit that is responsible for its
own costs and profits. The company is able to assess profits and sales in a particular area in
order to make decisions about the overall firm
Functional Departmentalization: This is departmentalization at the level of functions or activities.
Jobs are grouped according to function. For example, marketing and sales, human resources,
accounting and finance. Departments can be further divided (ie marketing have a research
section and an advertising section)
Customer Departmentalization: This is departmentalization according to the types of customers
likely to buy a certain project. For example, HMV divides its stores according to genres of CDs
and customers who like rap go to one section and customers who like opera go to another.
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