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4 www.downloadslide.com Organising part 4 10 Organisational structure and design 11 Managers and communication 12 Human resource management Organising is an important task of managers – one that is not always understood or appreciated. However, when the organisation’s goals and plans are in place, the organising function sets in motion the process of seeing that those goals and plans are pursued. When managers organise, they are defining what work needs to get done and creating a structure that enables those work activities to be completed efficiently and effectively. In Part 4, we look at the management function of organising. Chapter 10 introduces the concepts of organisational structure and organisational design. Part of getting an organisation to function well is to make sure communication is flowing up and down the organisational structure, and managers play a crucial part in achieving this. This is what we will look at in Chapter 11. Finally, the organising function involves finding people to fill the jobs that have been created. In Chapter 12, we will therefore discuss the human resource management activities in which managers become involved. Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 355 16/6/11 3:43:18 PM www.downloadslide.com Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 356 16/6/11 3:43:18 PM www.downloadslide.com Chapter 10 Organisational structure and design Learning outcomes Once managers are done planning, then what? This is when managers need to begin to ‘work the plan’. And the first step in doing that involves designing an appropriate organisational structure. This chapter covers the decisions involved with designing this structure. Focus on the following learning outcomes as you read and study this chapter: 10.1 Explain why organising is important. 10.2 Describe six key elements in organisational design. 10.3 Contrast mechanistic and organic structures. 10.4 Identify the contingency factors that favour either the mechanistic model or the organic model of organisational design. 10.5 Describe traditional organisational designs. 10.6 Discuss contemporary organisational designs. 10.7 Describe today’s organisational design challenges. Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 357 16/6/11 3:43:18 PM www.downloadslide.com 358 W hen Bernie Brookes took on the job of CEO of Myer after the break-up of the Coles Myer Group in mid-2006, he knew he had a big task ahead of him to turn around the poorly performing department store chain. The once successful retail business had consistently underperformed since the late 1990s in comparison to its closest competitor David Jones, and it became Bernie Brookes’ job to make the ‘My Store – My Myer’ catchphrase come alive again.1 The Myer business was founded by Sidney Myer, who arrived in Melbourne in 1899 as a penniless Russian immigrant and ended up creating one of the largest retail businesses in Australia. The Myer retail brand continued to grow during the 20th century, becoming well-recognised by Australian households. In 1983, Myer acquired Grace Bros Holdings Ltd, a department store chain based in New South Wales. In 1985, Myer merged with G.J. Coles & Co. Ltd and became Coles Myer Ltd. In 2004, Grace Bros stores were rebadged to Myer. However, by that time the retail store chain was in deep trouble. In June 2006, Myer was acquired from Coles Myer Ltd by a consortium comprising Newbridge Capital, Texas Pacific Group (TPG), Blum Capital and the Myer Family Company (the ‘consortium’) in a $1.4 billion transaction. Eighty-three per cent of Myer was owned by TPG and associates, 9 per cent by management, and 8 per cent by the Myer Family Company. According to Bernie Brookes, the new ownership structure was advantageous for Myer, for a couple of reasons. First, it gave the new management team, as one of the three key ownership groups within the business, a lot of scope and authority to make major changes. Second, because Myer was no longer a public company, management did not need to spend a lot of time and resources on external communication to shareholders and financial analysts. Instead, it could focus on its internal communication with staff and on getting the job done in terms of turning the organisation around. The new management team under the leadership of Bernie Brookes set out an ambitious ‘First 100 Days’ plan that was intended to be a bold start to a 50-month turnaround program of achieving the vision of becoming an ‘International Class Retail Business providing Inspiration to Everyone’. One of the first things that had to be changed was the culture, which needed to become more customer-focused. To emphasise the change, head office was literally renamed as the ‘Support Centre’. This was a radical change from how the ‘old’ Myer had operated. The ‘old’ Myer had become famous for multiple management layers and duplications. What management wanted to achieve was to change the emphasis of the business from being ‘head office-centric’, or autocratic, to being much more ‘store-centric’, or autonomous. Brookes had anticipated a hard slog getting staff and store managers on board with the change program after years of difficulties at the retailer, but he found them eager for change. They found the ‘new Myer’ willing to listen to their ideas. The objective of the new approach was to empower local management to drive store sales, improve customer loyalty and better support/ engage with the local communities. Budgets Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 358 16/6/11 3:43:23 PM www.downloadslide.com 359 were established for each store to spend locally on community sponsorships and in-store events. Store managers were given a say about what products they would stock, how they would market them, how they would manage their people, and so on. Cross-functional teams, called ‘Red Teams’, were set up that identified 101 customer service improvement projects across the whole retail chain. According to Brookes, the increased autonomy of store managers paid off in improved morale of management and staff. Along with greater autonomy, Brookes also offered 1200 managers and staff across the business incentivised remuneration as part of a strategy to change the culture at Myer. The departure from the Coles Group also meant that the ‘new’ Myer had to set up an independent organisational platform with its own human resources, IT and distribution functions. By mid-2007, Myer had completed this transition to its own recruiting and training, as well as payroll and performance management, systems. IT was largely outsourced to IBM. However, the biggest restructure occurred in the distribution function. Instead of having 34 small distribution centres, a new supply chain management system was put in place based on four large Australian distribution centres – Perth, Brisbane, Melbourne and Sydney – and four Asian hubs – in Shenzhen (China), Shanghai, Hong Kong and Singapore. This system, in combination with a major restructuring of the buying section, was seen as a key means to improve the buying system, reduce costs, and create a clearer chain of command and accountability. Basing the distribution around four warehouses across Australia meant that fashion goods would reach Myer stores 14–21 days faster, in a better and more store-ready condition, and at half the cost, than under the previous arrangements. By 2009, after three years and an investment of more than $500 million in its supply chain, technology, brands and stores, Myer was back in a competitive position, generating healthy annual earnings before interest and tax of $236 million. Having successfully achieved what the private equity owners had set out to do – to revitalise the Myer chain – the company was refloated on the Australian Securities Exchange in November 2009. Having successfully managed the business transformation process during the 50 months’ turnaround phase (from the beginning of June 2006 to the end of July 2010), Bernie Brookes is now focusing on the next stage – the growth phase – beyond July 2010. To this effect, Myer has commenced an expansion program of having 80 stores by 2014 (from the original 60 when the transformation started in 2006), which would be more than double the proposed number of stores operated by its smaller competitor, David Jones. Myer’s future goal is also to boost turnover from $3.3 billion in 2010 to $4 billion by 2015. When Bernie Brookes took on the role of CEO of Myer in 2006, he found management staff eager for change. Their greater autonomy resulted in better management practice and healthier staff morale. Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 359 16/6/11 3:43:34 PM www.downloadslide.com 360 part 4 organising A lthough Bernie Brookes’s organisational changes under a private equity group at the ‘new’ Myer might not be right for others, this example illustrates how important it is for managers to design an organisational structure that helps to accomplish organisational goals and objectives. In this chapter, we will present information about designing appropriate organisational structures. We will look at the various elements of organisational structure and at contingency factors that influence the design. We will look at some traditional and contemporary organisational designs. Finally, we will describe the organisational design challenges facing managers – such as Bernie Brookes – today. part 4 10.1 Learn in g out c ome Explain why organising is important. organising Arranging and structuring work to accomplish the organisation’s goals. Defining organisational structure and design No other topic in management has undergone as much change in the past few years as that of organising and organisational structure. Traditional approaches to organising work are being questioned and re-evaluated as managers search out structural designs that will best support and facilitate employees doing the organisation’s work – designs that can achieve efficiency, such as in the case of Myer in our opening story, but that also have the flexibility that is necessary for success in today’s dynamic environment. The basic concepts of organisation design formulated by early management writers such as Henri Fayol and Max Weber offered structural principles for managers to follow. (Those principles are described in Chapter 1.) Over 80 years have passed since many of those principles were originally proposed. Given that length of time and all the changes that have taken place, you would think that those principles would be pretty worthless today. Surprisingly, they are not. For the most part, they still provide valuable insights into designing effective and efficient organisations. Of course, we have also gained a great deal of knowledge over the years as to their limitations. In Chapter 1 we defined organising as arranging and structuring work to accomplish the organisation’s goals. It is a process through which managers design an organisation’s structure. That process is important and serves many purposes (see Table 10.1). The challenge for managers is to design an organisational structure that allows employees to do their work effectively and efficiently. Table 10.1╇ Purposes of organising • Divides work to be done into specific jobs and departments. • Assigns tasks and responsibilities associated with individual jobs. • Coordinates diverse organisational tasks. • Clusters jobs into units. • Establishes relationships between individuals, groups and departments. • Establishes formal lines of authority. • Allocates and deploys organisational resources. organisational structure The formal arrangement of jobs within an organisation. organisational design Developing and changing an organisation’s structure. Just what is organisational structure? It is the formal arrangement of jobs within an organisation. Just as humans have skeletons that define their shape, so organisations have structures that define theirs. When managers develop or change an organisation’s structure they are engaged in organisational design, a process that involves decisions about six key elements: work specialisation, departmentalisation, chain of command, span of control, centralisation and decentralisation, and formalisation.2 Let us take a closer look at each of these elements of structure. Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 360 16/6/11 3:43:35 PM www.downloadslide.com Work specialisation Remember the discussion of Adam Smith in Chapter 2, who first identified division of labour and concluded that it contributed to increased employee productivity? Early in the 20th century, Henry Ford applied this concept in an automobile assembly line where every Ford worker was assigned a specific, repetitive task. One person would put on the right front wheel, someone else would install the right front door, and another worker would put in the bench seat. By breaking jobs up into small, standardised tasks that could be performed over and over again, Ford was able to produce cars at the rate of one every ten seconds, using employees with relatively limited skills. Today, we use the term work specialisation to describe the degree to which tasks in an organisation are divided into separate jobs. The essence of work specialisation is that an entire job is not done by one individual but instead is broken down into steps, and each step is completed by a different person. Individual employees ‘specialise’ in doing part of an activity, rather than the entire activity, and that is why it is also known as division of labour. Work specialisation makes efficient use of the diversity of skills that workers have. In most organisations, some tasks require highly developed skills; others can be performed by employees with lower skill levels. This concept explains why you rarely find a cardiac surgeon closing up a patient after surgery. Instead, doctors doing their residencies in open-heart surgery and learning the skill usually stitch and staple the patient after the surgeon has finished the surgery. Early proponents of work specialisation believed that it could lead to great increases in productivity. At the beginning of the 20th century, that generalisation was reasonable. Because specialisation was not widely practised, its introduction almost always generated higher productivity. But, it can also result in monotonous and repetitive jobs. At some point, the human diseconomies from division of labour – boredom, fatigue, stress, low productivity, poor quality, increased absenteeism and high turnover – exceed the economic advantages.3 chapter 10 361 10.2 L ea r n in g o u t co m e Describe six key elements in organisational design. 10 work specialisation chapter organisational structure and design Dividing work activities into separate job tasks. Today’s view Most managers today continue to see work specialisation as an important organising mechanism because they recognise the economies it provides in certain types of jobs, but they also understand the problems it creates when it is carried to extremes. McDonald’s, for example, uses high work specialisation to make and sell its fast-food products efficiently. One person takes orders, others cook and assemble the hamburgers, another works the fryer, another gets the drinks, another bags orders, and so forth. Such single-minded focus on maximising efficiency has contributed to increasing productivity. In fact, at many McDonald’s, you will see a clock that times how long it takes employees to fill the order; look closer and you will probably see posted somewhere an order fulfilment time goal. At some point, however, work specialisation no longer leads to productivity. That is why other companies such as Ford Australia, Hallmark and Bendix Mintex use minimal work specialisation and instead give employees a broad range of tasks to do. Departmentalisation Does your university or college have an office of student services? Does it have an educational media department? If you are employed, does your organisation have a centralised marketing department or regional sales divisions? After deciding what job tasks will be done by whom, common job activities need to be grouped back together so that the work can be done in a coordinated and integrated way. How jobs are grouped together is called departmentalisation. Every organisation will have its own specific way of classifying and grouping work activities. Figure 10.1 shows the five common forms of departmentalisation. Functional departmentalisation groups jobs by functions performed. This approach can be used in all types of organisations, although the functions change to reflect the organisation’s objectives and work activities. Product departmentalisation groups jobs by product line. departmentalisation The basis by which jobs are grouped together. functional departmentalisation Grouping jobs by functions performed. product departmentalisation Grouping jobs by product line. Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 361 16/6/11 3:43:35 PM www.downloadslide.com 362 part 4 organising Figure 10.1╇ The five common forms of departmentalisation Functional departmentalisation 4 Plant Manager part Manager, Engineering Manager, Accounting Manager, Manufacturing – – + Efficiencies from putting together similar specialities and people with common skills, knowledge and orientations + Coordination within functional area + In-depth specialisation Geographic departmentalisation Sales Manager, Sales Western Australia/NT Manager, Human Resources Poor communication across functional areas Limited view of organisational goals Sales Manager Sales Manager, Sales Queensland Sales Manager, Sales NSW/ACT + Effective and efficient handling of specific regional issues + Serves needs of unique geographic markets Product departmentalisation – – Sales Manager, Sales Victoria/Tasmania Chief Executive Officer Car and Sport-Utility Vehicle (SUV) Division Manager Manager, Truck Manufacturing Manager, SUV Manufacturing Plant + Allows specialisation in particular products and services + Managers can become experts in their industries + Closer to customers Process departmentalisation Sawing Department Manager Sales Manager, Sales South Australia Duplication of functions Can feel isolated from other organisational areas Heavy Vehicle Division Manager Manager, Bus Manufacturing Manager, Purchasing – – Manager, Car Manufacturing Plant Duplication of function Limited view of organisational goals Plant Superintendent Planing and Milling Department Manager Lacquering and Sanding Department Manager Assembling Department Manager – + More efficient flow of work activities Customer departmentalisation Finishing Department Manager Inspection and Shipping Department Manager Can only be used with certain types of products Director of Sales Manager, Retail Accounts Manager, Wholesale Accounts + Customers’ needs and problems can be met by specialists – – Manager, Government Accounts Duplication of functions Limited view of organisational goals Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 362 16/6/11 3:43:36 PM www.downloadslide.com In this approach, each main product area is placed under the authority of a manager who is responsible for everything having to do with that product line. Geographic departmentalisation groups jobs on the basis of territory or geography, perhaps the Asia-Pacific, European and North American regions. Each of these regions is, in effect, a department organised around geography. If an organisation’s customers are scattered over a large geographic area, this form of departmentalisation can be valuable. Process departmentalisation groups jobs on the basis of product or customer flow. In this approach, work activities follow a natural processing flow of products or even of customers. For example, at a wood cabinet manufacturing plant in southern New South Wales, production is organised around six departments: sawing, planing and milling, assembling, lacquering and sanding, finishing, and inspection and shipping. Finally, customer departmentalisation groups jobs on the basis of customers who have common needs or problems that can best be met by having specialists for each group. For example, a large law office might segment its staff on the basis of whether they serve corporate or individual clients. Today’s view Most large organisations continue to use combinations of most or all of these types of departmentalisation. For example, Black & Decker organises its divisions along functional lines, its manufacturing units around processes, its sales around geographic regions, and its sales regions around customer groupings. One popular departmentalisation trend is the increasing use of customer departmentalisaÂ� tion. Because getting and keeping customers is essential for success, this approach works well because it emphasises monitoring and responding to changes in customers’ needs. Another popular trend is the use of teams, especially as work tasks have become more complex and diverse skills are needed to accomplish those tasks. One specific type of team that more organisations are using is a cross-functional team, which is a work team composed of individuals from various functional specialties. For instance, at Ford’s material planning and logistics division, a cross-functional team with employees from the company’s finance, purchasing, engineering and quality control areas, and with representatives from the company’s outside logistics suppliers, has made several work improvement ideas.4 And if you remember from the Myer example at the beginning of the chapter, Myer used cross-functional teams to identify 101 projects across the chain where teams are now working to try and improve customer service. The use of cross-functional teams is discussed more fully in Chapter 14. 1. Explain why organising is important. 2. Identify the six key elements used in designing an organisation’s structure. chapter 10 363 geographic departmentalisation Grouping jobs on the basis of geographical region. process departmentalisation Grouping jobs on the basis of product or customer flow. customer departmentalisation 10 chapter organisational structure and design Grouping jobs on the basis of specific and unique customers who have common needs. cross-functional teams Work teams composed of individuals from various functional specialities. review questions 3. Discuss the traditional and contemporary views of work specialisation. 4. Describe each of the five forms of departmentalisation. Chain of command Suppose you were at work and had a problem with some issue that came up. What would you do? Who would you go to, to help you resolve that issue? People need to know who their boss is. That is what the chain of command is all about. The chain of command is the line of authority that extends from the upper organisational levels to the lowest levels, which clarifies who reports to whom. Managers need to consider the chain of command when organising work, because it helps employees with questions such as ‘Who do I report to?’ or ‘Who do I go to if I have a problem?’. To understand the chain of command, you have to understand three other important concepts: authority, responsibility and unity of command. Authority refers to the rights inherent chain of command The line of authority extending from upper organisational levels to the lowest levels, which clarifies who reports to whom. authority The rights inherent in a managerial position to tell people what to do and to expect them to do it. Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 363 16/6/11 3:43:36 PM www.downloadslide.com 364 part 4 responsibility part 4 The obligation to perform any assigned duties. unity of command The management principle that each person should report to only one manager. organising in a managerial position to tell people what to do and to expect them to do it.5 An organisation’s managers, who are in the chain of command, are granted a certain degree of authority to do their job of coordinating and overseeing the work of other people. As managers assign work to employees, those employees assume an obligation to perform any assigned duties. This obligation or expectation to perform is known as responsibility. Finally, the unity of command principle (one of Fayol’s 14 principles of management) helps to preserve the concept of a continuous line of authority. It states that a person should report to one manager only. Without unity of command, conflicting demands and priorities from multiple bosses can create problems. Today’s view Although early management theorists (Fayol, Weber, Taylor and others) believed that chain of command, authority, responsibility and unity of command were essential, times have changed.6 These concepts are considerably less relevant today because of information technology and employee empowerment. For example, at the Michelin plant in Tours, France, managers have replaced the top-down chain of command with ‘birdhouse’ meetings, in which employees meet for five minutes at regular intervals throughout the day at a column on the shop floor and study simple tables and charts to identify production bottlenecks. Instead of being bosses, shop managers are enablers.7 Information technology has made it possible for employees to access information in a matter of a few seconds that used to be available only to managers. It means that employees can communicate with anyone else in the organisation without going through the formal chain of command. Also, many employees, especially in organisations where work revolves around projects, find themselves reporting to more than one boss, thus violating the unity of command principle. However, such arrangements can and do work if communication, conflict and other issues are managed well by all involved parties. Of course, many organisations still find that they are most productive by enforcing the chain of command, but their numbers are dwindling. Span of control Organisational level How many employees can a manager efficiently and effectively manage? The traditional view was that managers could not – and should not – directly supervise more than five or six subordinates. span of control This question of span of control is important because, to a large degree, it determines the The number of employees number of levels and managers an organisation has. Other things being equal, the wider or a manager can efficiently larger the span of control, the more efficient an organisation is. An example will show you why. and effectively manage. Assume that we have two large organisations, and each has approximately 4100 employees. As Figure 10.2 shows, if one organisation has a uniform span of four and the other a span of eight, the wider span will have two fewer levels and approximately 800 fewer managers. If Figure 10.2╇ Contrasting spans of control the average manager made $80â•›000 a year, the organisation with the wider span would Members at each level save over $64 million a year in management (Highest) Assuming span of 4 Assuming span of 8 salaries alone! Obviously, wider spans are 1 1 1 more efficient in terms of cost. However, 2 4 8 at some point, wider spans may reduce 3 16 64 effectiveness if employee performance 4 64 512 worsens because managers no longer have 5 256 4096 the time to lead effectively. 6 7 (Lowest) 1024 4096 Span of 4: Employees Managers (level 1–6) Today’s view = 4096 = 1365 Span of 8: Employees Managers (level 1–4) = 4096 = 585 The contemporary view of span of control recognises that there is no magic number. Many factors influence the number of Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition Robbins 6e 2ndpp *Pt4 Ch10.indd 364 16/6/11 3:43:37 PM